Better your debt-to-income ratio so you’re prepared for transactions ahead.
Your debt-to-income ratio can be a valuable number! In some ways, it’s as important as your credit score when applying for home loans. The number is exactly as it sounds: the amount of debt you have compared to overall income.
A lot of lenders, particularly mortgage and auto lenders, use your debt-to-income ratio to figure out how much of a loan you can handle. In turn, you’re able to determine how much of the house you can afford! Learn how to calculate your number (roughly) so that you know what ballpark of a budget you’re looking at.
Total your monthly debt.
Your debt-to-income ratio is equal to your monthly debt payments divided by monthly income. Firstly, determine how much you spend each month on debt.
Total your monthly income.
The second step is to calculate your income of money each month. This may include gross income, bonuses or overtime, and child support
Calculate your debt-to-income ratio!
Once you’ve calculated what you spend each month on debt payments and what you receive each month in income, you have what you need to determine your debt-to-income ratio. Divide your monthly debt payments by your monthly income. Then, multiply the result by 100 to reach the percentage.
The top ways to improve your debt-to-income ratio are to:
Cut your spending. Take a look at what you’re spending every month. Are there ways to cut down? Instead of eating out for every meal, consider cooking more meals at home. Skip those new shoes, a brand new TV, and ditch the magazine subscription to save a few dollars every month.
Increase your salary. For some companies, annual reviews are performed to gauge an employee’s work performance and – if they’re doing a good job – are rewarded with some increase in their salary. Other companies that do not perform annual reviews may leave an individual unsure how they are doing and wondering if and when they will receive a pay increase. If you can’t get a raise at your current job, consider taking on freelance or a second job to help increase your income.
Pay off debt. Keep making credit card payments every month, and be sure not to miss it even by one day. Doing so could negatively impact your credit score and debts owed.
Money matters. So that you aren’t handling transactions on your own, scope out the right escrow company. For all of your escrow needs and services, contact Eastland Escrows in Covina, California!