If you’ve come across this article, you already know that your debt-to-income (DTI) ratio is an important metric lenders use to determine whether you qualify for a mortgage. In this article, we’ll show you how to improve your DTI in order to increase your chances of getting a mortgage or simply to get better mortgage terms.
What Is DTI: A Quick Explanation
DTI is your monthly debt payments divided by your monthly gross income:
DTI % = Monthly Debt Payments ÷ Monthly Income
For example:
| Your total monthly debt payments: | $1,250 |
| Your total monthly gross income: | $6,000 |
| Divide debt payments by gross income: | $1,250 ÷ $6,000 =
20.83% |
| Your DTI: | 20.83% |
What you’re left with is a ratio that tells a lender how much of your income is used to pay debts, thereby telling the lender how much more debt they’re willing to lend to you. In this case, lower is better.
There are some basic rules of DTI, such as what the maximum ratio is or what to include in your debt payments, but we won’t cover that in this article. If you’re interested, you can learn more here.
How to Improve Your DTI?
Lowering your DTI is mathematically quite simple, but it does take commitment and a plan to get there. The basic way of lowering your DTI is to either:
Increase Your Income
Just because you make extra income every once in a while, don’t expect lenders to count that income. You need to show lenders that your income is consistent and reliable if you want that income to count towards your DTI calculation.
Alternatively, if the extra income you make cannot be used in your DTI calculation, you can use that extra income to pay down your debts!
2. Offer Your Services Independently
12. Pay More Towards Your Debts
15. Eliminate Unnecessary Expenses
18. Be a Software Product Tester
Easier said than done, but have you asked your boss how? Perhaps there are new positions, new skills you can learn, additional hours you can work or is it time for a new job at a new company?
Selling your expertise as an independent consultant is a major shift in today’s global economy. Don’t quit your day job, though, and make sure your side consulting gig doesn’t interfere with your stable employment income.
If you live near popular attractions such as the beach, airports, or urban downtowns and have an empty parking space, you can rent it out and make money. Check out JustPark and Parkwhiz to see if this is something you can do.
If you like to perform research, why not get paid for it? Some people claim to make $100 to $150 a day. You can find a list of research companies at GreenBook.
If writing is your passion and you’re an expert on a topic, why not write and get paid? Writing is constantly in demand and can be a consistent source of income. Check out blogging jobs at Problogger to start.
If you were one of those A students who likes to help others then becoming a tutor may just be the perfect fit. You can find a local tutoring company or tutor online by signing up at tutor or kaplan.
Some people who travel for their job or pleasure may need a house sitter. The pay varies depending on the duties you need to perform while they’re gone, but a typical range is from $25 to $50 a day.
Companies like Lyft and Uber are turning people into drivers. Drive when you want and earn extra money. Some drivers from Lyft and Uber claim to make up to $70k a year in San Francisco and up to $90k in New York.
As a virtual assistant, you can work from home or just about anywhere as long as you get the job done. Some virtual assistants make anywhere from $14 to $30 per hour. You may consider becoming certified to get more assignments at an organization such as assistu. Certifications would also mean higher pay.
If you know a second language and are detail-oriented, translating may be an excellent opportunity to make more money. Take advantage of your language skills and get paid. As a translator, you can work at your own pace. Translatorbase is an excellent example of a site where you can find translation jobs with some projects paying more than $500.00!
Pay more than your minimum to pay off the principal balance quicker. For example, if you owe $1,000 on your credit card at 20% annually and make a minimum payment of $20, it’ll take more than 8 years to pay off your debt!
Eat at home. If you eat out for breakfast, lunch, and dinner, you’ll spend more than $9,000 annually! If you only ate out for lunch, you’ll still spend more than $2,400. Eat before leaving the house, pack a lunch and cook a meal for dinner.
You may not have an option to shop for necessary bills like water and electricity, but you can shop for other bills such as car insurance and cell phone service. By doing so, you can save over $1,500 per year! It all adds up.
Do you need cable television? Why not eliminate it and save $600 per year? If you need your television fix, try services such as Netflix. At $9.99 per month, you’ll still get to view shows and movies and save hundreds per year.
The best things in life are free or pretty darn cheap! Going to the park, hiking, or just taking an evening stroll is not only healthy, but it’s also free! Check out Meetup for local events. Explore new interests and meet people to do it with.
Today, many people have talents that can be used to create a course to make some extra money. For example, people are willing to pay to learn how to code in different languages. You can be the creator of those coding classes if your talent is software coding.
Top course-building platforms to create and sell your expertise are:
If you already like to check whether software works or not, then perhaps getting a side gig to test software is right for you. According to the Bureau of Labor Statistics, the pay for this skill is about $47.73 per hour. Once you decide what type of software testing you want (Database, desktop application, mobile, web testing), you can sign up to places like Upwork and start earning money.
If you love to take videos and edit them, you can actually have fun doing what you are good at and get paid to do it. You can sign-up with freelance websites such as Mandy and 90seconds.
With more companies and individuals wanting online visibility, you can take advantage of the opportunity and start designing websites on the side. The Website designs can vary in complexity from only a couple of pages to more complex pages that require more time. Working as a website designer can pay anywhere from $2,000 to $5,000 for a very simple site. A more complex design can pay up to $15,000 to $25,000.
With the rise of video content, more and more companies will need to hire voiceover artists to master their videos. Check out websites like voices and Bodalgo to find out how you can start your next voiceover gig.
If anyone has ordered any furniture in the last two years, you know that there is a significant delay in getting your furniture, so what happens? People who desperately need a dining table or other furniture will turn to buying used furniture. Places like offerup allow you to sell used furniture in a very easy way.
You can also sell other items on the popular marketplace Poshmark. However, this can be a weekend thing; you can build up your store little by little and make some steady extra income in the long run.
From logo designs to creating templates, business owners need marketing collateral for their website, social media profiles, landing pages, webinars, etc. According to the Bureau of Labor Statistics, graphic designers can make anywhere from $24 to $35 an hour.
Here are some places to get you started on your journey.
Most small businesses that start to grow their revenue don’t have the time to keep their finances in check and need to hire a part-time bookkeeper. Even individuals with significant assets may also require the help of a bookkeeper. So, if you love numbers and know QuickBooks or some other accounting software, this gig is for you.
You can check out websites like taxfyle, Upwork, and bark.com to get started.
If you love data entry and can do it anytime and from anywhere, then data entry may be the gig for you.
Check the following companies that offer data entry jobs.
Start Now To Improve Your DTI
Improving your DTI doesn’t come overnight, but it can be done with commitment and making the right decisions. So start now and improve your DTI. Your bank account will thank you for it, and you’ll be rewarded by your lender with a better mortgage.
If you have additional tips, please let us know.
Photo credit: Prostock-Studio
