How does Debt to Income Ratio work?

[Anonymous]

I need some advice. We want to buy our first home, but both DH and I have a ton of federal student loan debt. Mine is in forbearance right now, and my debt to income ratio is something like 75%, yikes. I will start making payments soon by enrolling in the income based repayment plan (I think). We haven't checked DH's ratio, but I imagine his is similar to mine (he is in deferment currently). I work very part time right now, so my income isn't much. DH brings in most of our family income (around $80,000). How can we reduce our debt to income ratio? How does this work? I'm not currently making any monthly payments to my student loans so I don't understand why my ratio is so high? Will the ratio percentage go down once I enroll in a payment plan? How long does it take for ratio changes to reflect on your credit report? Totally at a loss here. Is there some kind of specialist I can talk to about these things? Will we ever be able to buy a house with crushing students loans that we will be paying off for the next 10-15 years minimum? So stressful, I feel like if one isn't born into a family who can help you through college and the only way you can go to school is through loans, it's like you have to choose between having an education or buying a house.

[Anonymous]

I can't speak to your specifics, but I think the debt to income ratio you need is about 47%. To lower it, you have to pay down the bills. By debt to income ratio, I mean the monthly payments vs monthly salary.

Why would yours be in forbearance if you're married and your DH is making money?

[Anonymous]

Anonymous wrote:I can't speak to your specifics, but I think the debt to income ratio you need is about 47%. To lower it, you have to pay down the bills. By debt to income ratio, I mean the monthly payments vs monthly salary.

Why would yours be in forbearance if you're married and your DH is making money?

To be approved for a mortgage, ideal DTI (including housing) would be LESS than 38% (so add together your monthly payments and divide by your total monthly income). FHA allows for slightly higher ratios (41%). Honestly- I am more old fashioned- you are better off shooting for less than 30%.

[Anonymous]

DTI ratio is literally your monthly debt divided by your monthly income. Not knowing anything about your student debt I would imagine going on a payment plan that's income based would presumably reduce your monthly payment, and thus reduce your debt to income. Usually these kinds of changes only get picked up by the bureaus in 30 to 60 days, but it's addressable if you just provide the bank with proof.

The other thing that impacts your dti is car loans, mortgages, credit card debt, etc. Simply put the best way to improve your ratio is to pay off debt that is high monthly payment and short term (car payments usually are). Other obvious option is to go FT and raise your income.

Also, calculate your debt to income with your husband included cause that's how the bank will. Don't include credit cards you pay off every month, only ones that carry a balance.

All this said a DTI of 75% is insanely high. Without passing any judgement at all, you may want to reconsider buying a house honestly, both because it'll really burden you and because sounds like you already have a metric shitton of debt. And getting approved with that dti and forbearance is going to be tough and only happen at higher rates.

[Anonymous]

I think you need to work on getting a higher paid job before you can think about housing. In this area, housing isn't affordable. To even be able to afford the payments, you'd need 20% down, which might be even more of a struggle than your student loans.

[Anonymous]

Anonymous wrote:DTI ratio is literally your monthly debt divided by your monthly income. Not knowing anything about your student debt I would imagine going on a payment plan that's income based would presumably reduce your monthly payment, and thus reduce your debt to income. Usually these kinds of changes only get picked up by the bureaus in 30 to 60 days, but it's addressable if you just provide the bank with proof.

The other thing that impacts your dti is car loans, mortgages, credit card debt, etc. Simply put the best way to improve your ratio is to pay off debt that is high monthly payment and short term (car payments usually are). Other obvious option is to go FT and raise your income.

Also, calculate your debt to income with your husband included cause that's how the bank will. Don't include credit cards you pay off every month, only ones that carry a balance.

All this said a DTI of 75% is insanely high. Without passing any judgement at all, you may want to reconsider buying a house honestly, both because it'll really burden you and because sounds like you already have a metric shitton of debt. And getting approved with that dti and forbearance is going to be tough and only happen at higher rates.

The bolded part is incorrect. The bank WILL calculate the MIMIMUM payment on every credit card you have that has a balance. If you have a balance on a card at the time the credit report is run- that minimum payment will be included.

[Anonymous]

Sounds to me like you need to work on the income side of the DTI equation. Why are you working "very part time" when you have a degree and massive student loans to pay off?

[Anonymous]

Anonymous wrote:Sounds to me like you need to work on the income side of the DTI equation. Why are you working "very part time" when you have a degree and massive student loans to pay off?

Because it was important to me to stay home with my daughter for the first few years of her life. She will be starting Pk3 next year, so I plan on working more. I figured that having a part time job in my field kept my foot in the door, but also allowed me to stay home with my daughter. I have the rest of my life to work full time.

[Anonymous]

Anonymous wrote:I think you need to work on getting a higher paid job before you can think about housing. In this area, housing isn't affordable. To even be able to afford the payments, you'd need 20% down, which might be even more of a struggle than your student loans.

Yes, I think you are right...

[Anonymous]

Anonymous wrote:I can't speak to your specifics, but I think the debt to income ratio you need is about 47%. To lower it, you have to pay down the bills. By debt to income ratio, I mean the monthly payments vs monthly salary.

Why would yours be in forbearance if you're married and your DH is making money?

It might not have been the wisest decision to put off paying back the loans, but since I am staying at home for the most part we feel like we are scrapping by already. I am planning on starting to work full time (or at least close to) within the next six months since my daughter will be starting school in the fall.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Sounds to me like you need to work on the income side of the DTI equation. Why are you working "very part time" when you have a degree and massive student loans to pay off?

Because it was important to me to stay home with my daughter for the first few years of her life. She will be starting Pk3 next year, so I plan on working more. I figured that having a part time job in my field kept my foot in the door, but also allowed me to stay home with my daughter. I have the rest of my life to work full time.

well, something gotta give. and in your case, it's likely going to be homeownership, at least for a long while.

[Anonymous]

Anonymous wrote:

Anonymous wrote:DTI ratio is literally your monthly debt divided by your monthly income. Not knowing anything about your student debt I would imagine going on a payment plan that's income based would presumably reduce your monthly payment, and thus reduce your debt to income. Usually these kinds of changes only get picked up by the bureaus in 30 to 60 days, but it's addressable if you just provide the bank with proof.

The other thing that impacts your dti is car loans, mortgages, credit card debt, etc. Simply put the best way to improve your ratio is to pay off debt that is high monthly payment and short term (car payments usually are). Other obvious option is to go FT and raise your income.

Also, calculate your debt to income with your husband included cause that's how the bank will. Don't include credit cards you pay off every month, only ones that carry a balance.

All this said a DTI of 75% is insanely high. Without passing any judgement at all, you may want to reconsider buying a house honestly, both because it'll really burden you and because sounds like you already have a metric shitton of debt. And getting approved with that dti and forbearance is going to be tough and only happen at higher rates.

The bolded part is incorrect. The bank WILL calculate the MIMIMUM payment on every credit card you have that has a balance. If you have a balance on a card at the time the credit report is run- that minimum payment will be included.

But if you payoff your cards every month, it won't show a balance.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:DTI ratio is literally your monthly debt divided by your monthly income. Not knowing anything about your student debt I would imagine going on a payment plan that's income based would presumably reduce your monthly payment, and thus reduce your debt to income. Usually these kinds of changes only get picked up by the bureaus in 30 to 60 days, but it's addressable if you just provide the bank with proof.

The other thing that impacts your dti is car loans, mortgages, credit card debt, etc. Simply put the best way to improve your ratio is to pay off debt that is high monthly payment and short term (car payments usually are). Other obvious option is to go FT and raise your income.

Also, calculate your debt to income with your husband included cause that's how the bank will. Don't include credit cards you pay off every month, only ones that carry a balance.

All this said a DTI of 75% is insanely high. Without passing any judgement at all, you may want to reconsider buying a house honestly, both because it'll really burden you and because sounds like you already have a metric shitton of debt. And getting approved with that dti and forbearance is going to be tough and only happen at higher rates.

The bolded part is incorrect. The bank WILL calculate the MIMIMUM payment on every credit card you have that has a balance. If you have a balance on a card at the time the credit report is run- that minimum payment will be included.

But if you payoff your cards every month, it won't show a balance.

That is incorrect. If you pay your BALANCE in full every month- you still have a balance on any given month if it is a card you use regularly (hence the thing you are paying off in full). The credit companies do report THAT balance. For me- I use my rewards card for everything- I may charge $2000/month on it. I pay it off every month- but my bank will report my balance as of the last statement.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:DTI ratio is literally your monthly debt divided by your monthly income. Not knowing anything about your student debt I would imagine going on a payment plan that's income based would presumably reduce your monthly payment, and thus reduce your debt to income. Usually these kinds of changes only get picked up by the bureaus in 30 to 60 days, but it's addressable if you just provide the bank with proof.

The other thing that impacts your dti is car loans, mortgages, credit card debt, etc. Simply put the best way to improve your ratio is to pay off debt that is high monthly payment and short term (car payments usually are). Other obvious option is to go FT and raise your income.

Also, calculate your debt to income with your husband included cause that's how the bank will. Don't include credit cards you pay off every month, only ones that carry a balance.

All this said a DTI of 75% is insanely high. Without passing any judgement at all, you may want to reconsider buying a house honestly, both because it'll really burden you and because sounds like you already have a metric shitton of debt. And getting approved with that dti and forbearance is going to be tough and only happen at higher rates.

The bolded part is incorrect. The bank WILL calculate the MIMIMUM payment on every credit card you have that has a balance. If you have a balance on a card at the time the credit report is run- that minimum payment will be included.

But if you payoff your cards every month, it won't show a balance.

That is incorrect. If you pay your BALANCE in full every month- you still have a balance on any given month if it is a card you use regularly (hence the thing you are paying off in full). The credit companies do report THAT balance. For me- I use my rewards card for everything- I may charge $2000/month on it. I pay it off every month- but my bank will report my balance as of the last statement.

Peculiar. None of mine do. They report utilization, but balance is $0 as by definition, paying off the balance means there is no balance.

[Anonymous]

You need to read some books about finance. You are woefully uneducated.

CUT out all extras. No eating out. No fancy dates. No movies. Cut cable. No fancy coffee. No going out to lunch. Cut everything until you pay off your debt.

YOU cannot afford a house, so don't even bother until your debt is gone.