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Getting a Financial Foothold: 6 Ways to Lower Your Debt-to-Income Ratio

Consumers who want to apply for a mortgage home loan must qualify according to the terms of the mortgage program. Lenders review the applicant’s debt-to-income ratio and determine if the borrower can afford the loan payments. Consumers who want to get a mortgage home loan start by reviewing the requirements for the preferred program. Reviewing 6 ways to lower your debt-to-income ratio shows more effective ways to qualify for a mortgage home lion and avoid higher than average interest rates.

  1. Consolidate All Your Debts

Consolidating all debts into one loan and lower the interest rates. A debt consolidation loan is an ideal solution for high debt volumes and pays the creditors off immediately. Consumers who qualify for the loans can add as many debts as they choose to the loan and pay one payment each month instead of several payments. With the decrease in interest, the consumer decreases their debt-to-income ratio.

This reduces negative listings and puts the consumer in better standing on their credit history. Since the interest goes down, the balance of some of the accounts decreases, too. This could give the consumer a better chance to get financing for a new or existing home in the future. The mortgage home loan selected by the consumer defines what ratio is acceptable and enables the borrower to get a mortgage home loan. Consumers who want to learn more about the loans can get details from right now.

  1. Pay Off Smaller Debts and Request a Removal

Paying off smaller debts and request a removal improves the consumer’s debt-to-income ratio. The ratio increases according to the total volume of debt and an increase in the borrower’s income due to a higher than average volume of debt. When determining affordability for the home loan, the borrower’s income should be no larger than 43% for most mortgage programs. Paying off smaller debts helps consumers reduce the ratio, and it is an easy task that they can accomplish quickly with the right plan. Once the debts are paid off, the consumer can send a request to each credit bureau to remove the listing since it is paid in full.

  1. Negotiating a Settlement Offer for Charged-Off or Negative Listings

Negotiating a settlement offer for charged-off and other negative listings help the consumer reduce the balance of the debts and pay them faster. The settlement offers are available as a lump-sum payment or a new installment plan. Typically, the accounts are sold to a collection agency who increases the balance to offset any losses they have incurred by purchasing the account from the creditor. However, the consumer is responsible only for the original debt balance even though the collection agency will lie and imply otherwise.

Setting up a settlement offer helps the consumer get up to a 50% discount or agree to pay a smaller lump sum just to settle the debt. Luckily, these accounts can be removed from the consumer’s credit history as soon as they are paid off. The credit bureaus will remove the original debt in addition to any duplicate listings connected to the collection agency once it is paid.

  1. Transfer Some Balances to Lower Interest Credit Cards

Transferring some balances to a lower interest credit card helps lower the interest rate and the total balance of the debt. The strategy can reduce the debt-to-income ratio since the interest rate is decreased. It can also make it easier for the consumer to pay off the debt faster since the minimum payment will be lower and more affordable. Consumers with great credit could get an introductory offer from some credit card companies where they won’t pay any interest for at least the first year. This could save them incredibly on interest and avoid a denial due to a higher than average debt-to-income ratio.

Married couples who want to transfer balances can transfer debts in either of their names to a new credit card. They could also apply for a mortgage in only one name to reduce the debt-to-income ratio. If the mortgage is in one name only, the couple can set up the title or deed to have both names on it when the loan is paid off. This strategy won’t reduce either party’s right to the property if they divorce before the mortgage is paid off.

  1. Increase Income Streams

Increasing income streams helps the borrower qualify for a mortgage home loan by having more income than debt. The task is possible by negotiating for a larger salary or taking on a new job in addition to their current position. It is never a great idea to change jobs right before applying for a mortgage home loan. Most mortgage loan programs want a borrower who has between six months and two years of history at their current job. This shows that the borrower has a stable work history and income.

  1. Refinance Loans to Get a Better Interest Rate

Refinancing loans helps the consumer get a better interest rate and lower their overall debt volume. When assessing the debt-to-income ratio, the lender must determine that the borrower has more incoming earnings than they have debts. It is necessary to establish affordability for the mortgage home loan and the insurance requirements for the property. All homes that are financed must be protected by at least the homeowner’s insurance. However, if the property is in a flood zone, it must be protected by flood coverage, too. The borrower must have enough income to afford all these requirements before getting a mortgage home loan.

Consumers who want to get a mortgage home loan must qualify for their preferred mortgage home loan program. Improving their credit rating and income-to-debt ratio helps them qualify for more loans. However, the debt-to-income ratio matters, too. Paying off more debt before applying for a mortgage helps the consumer reduce their ratios and get access to more mortgage home loans. Transferring account balances and increasing their monthly income helps them get qualified for a mortgage. Reviewing ways to lower their debt-to-income ratio helps the consumer get a better start when applying for their preferred mortgage home loan.