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Calculating Your Debt to Income Ratio: What’s the Sweet Spot for Lenders?

The Housing Affordability Index is something that experts use to determine if a family earns enough money to buy a house. You must make enough money to qualify for a loan, so this index is vital.

When you apply for a loan, you probably will not hear anything about this index, though. Instead, your lender might talk about numbers, amounts, and ratios, and they will likely bring up the debt to income ratio.

If you aren’t sure what the debt to income ratio is, you should learn before applying for a loan. This ratio helps lenders determine your risk level and loan amount, and all lenders use it.

Here is a guide to help you learn the definition of this ratio, what a good one is, and other information relating to debt to income ratios in lending.

The Definition of Debt to Income Ratio

Lenders use various tools and calculations when evaluating loan applications, and one of these is debt to income ratios. A debt to income ratio compares a person’s debt payments to their income to see where they stand.

The purpose of this calculation is to determine risk. People with high debt to income ratios might have trouble repaying loans, as they already have high debt loads. As a result, a bank will consider a person like this a high risk.

People with lower ratios might face fewer challenges in paying their loans. Banks view these individuals as low-risk borrowers.

Your debt to income ratio reveals a lot about your financial picture. Not only is this important to understand, but it is also essential to calculate your ratio before applying for a mortgage.

How to Calculate Your Debt to Income Ratio

Are you wondering how to calculate debt to income ratio? If so, here is an explanation to help you learn how to determine yours. To find your debt to income ratio, you must know two main things:

1. Your gross monthly income
2. Your total monthly debt payments

First, your gross monthly income is a total of all the income you earn per month. It is the amount you earn before taxes, and it should include income from all sources.

Next, your total monthly debt payments include routine debts you must pay each month. Your total debt payments might include your car payments, student loans, credit cards, and other loan payments.

You do not include your regular monthly expenses, such as utility payments and insurance. This ratio only factors in other types of expenses that are “extras.” In other words, you should add in any types of loans that you will eventually pay off.

Once you have these two amounts, you divide your gross monthly income by your total monthly expenses. The answer you get is a percentage, and this percentage is what matters to lenders.

If you have trouble calculating these amounts yourself, you could use a ratio simplifier, which is a tool that calculates the ratio for you. To use it, you input the amounts it asks for, and the tool provides your debt to income ratio.

What Lenders Look for With These Ratios

While lenders view factors other than your debt to income ratio, this ratio is one of the most important factors in a lender’s decision. What is a good debt to income ratio, you might wonder?

Most lenders view a ratio of 43% or less; however,  most lenders prefer a ratio of 36% or less. If your ratio is higher than 43%, you will probably face challenges getting approved for a loan.

This ratio reveals a lot about your risk level. When a person has few debts to pay each month, they may have an easier time paying their bills. People strapped with major debt loads, on the other hand, often face more challenges paying their bills.

Banks know this and fully understand how this works, which is why they place a lot of weight on a person’s debt to income ratio. If you’re worried that yours is too high, you might want to work on improving it before applying for a loan. 

Ways to Improve Yours Before Applying

So, what is the best way to improve your debt to income ratio? Well, there are several options you can pursue.

The main goal is to increase your income and decrease your debt payments. If you can achieve these goals, you can transform your ratio to meet the sweet spot that lenders look for when evaluating loan applications.

The first step is to find ways to increase your income. Is there a way you can work overtime at your current job to bring home more money? Could you take on a second job or start a home business to increase your income quickly.

Finding ways to increase your income will instantly help you improve your debt to income ratio. The next step, though, is finding ways to reduce your expenses.

The most logical way to decrease expenses is by paying off your loans. For example, if you have a car loan with a $500 monthly payment, is there any way you could pay off the balance of the loan? If so, you’ll see a positive change in your ratio.

Keep in mind; you shouldn’t use all your cash to pay off your loans, though. You must keep some for your down payment and moving expenses. If necessary, you might want to spend a few months working on paying off your debt before applying.

If you can pay off enough debt in a few months without using all your savings, you’ll see an improved financial position.

Make Sure You Prepare Financially Before Applying

As you can see, your debt to income ratio matters a lot when applying for a mortgage. Additionally, your credit score also matters, as does your financial picture.

If you feel like you’ve learned a lot about mortgage lending in this article, you might be ready to learn more. You can learn more by browsing through our website for lots of other articles.

Just because you enjoy sharing with others doesn’t mean you want to share your love. Most people prefer to be their mate’s one-and-only and consider cheating a deal-breaker. Wouldn’t it be fantastic if you could spot a serial cheater before falling in love with him?

Yes, many people go through life in countless casual relationships, free of commitment. They are upfront in the beginning and let the other person know that their love life is a revolving door. For them, cheating isn’t an issue since they have been honest and aren’t interested in committing to anyone.

Perhaps you’re like most people in America who prefer a monogamous relationship. Of course, you needn’t be married to be in a committed relationship. If you have a mutual agreement as a couple, you will consider having anyone on the side as cheating.

How can you be sure that you aren’t beginning a new relationship with a serial cheater? Is finding a lifelong love worth risking heartbreak? Alfred Lord Tennyson believed so when he wrote that losing in love is better than never finding it.

Dealing with matters of the heart is a risky business. If you’ve been in toxic relationships in the past, you may be hesitant to try again. When a serial cheater breaks your heart, it’s understandable that you’d have trust issues.

How to Spot a Cheater

So, you’ve met a guy who meets all your love material criteria. He’s handsome, charming, and has a rewarding career. After dating for a while, you can picture yourselves as a forever couple. He seems to say all the right things and has his life together, or does he?

Before you step out on a limb for love, set your heart aside for a moment and listen to your intuition. It’s easy for your heart to be oblivious to red flags in a relationship. Protect yourself from a toxic relationship and learn to recognize these signs that your person may be a serial cheater.

1 – He’s Got a Sordid History of Broken Relationships

Very few people are lucky in love once, and it lasts a lifetime. Most people date and have a couple of serious relationships before they find their forever partner. Just because you aren’t your man’s first love interest doesn’t mean he is a cheater.

However, be suspicious if he openly brags about all the women he’s loved and dumped. Do you want to be another checkmark in his little black book? Most serial cheaters have a sketchy reputation, and it might be worth your while to reconsider trusting him.

2 – He is Rarely Available for You

It takes two people to tango, so why does he have you dancing solo so often? Even married couples have jobs and other responsibilities that keep them apart for a few hours or days. You shouldn’t expect your man to be available every minute of the day.

If he loves you, shouldn’t he want to communicate with you regularly? It’s not that you wish to him psycho calling or texting you constantly, which is a tell-tale sign he’s either a control freak or is desperate. You don’t need that situation, either.

Does he seem to have difficulty penciling time with you into his schedule? Why do most of your texts go unanswered, and your calls go instantly to voicemail? Maybe he is juggling dates and invitations from another woman.

3 – He is More into Himself

A man who takes pride in his appearance and exudes self-confidence is quite attractive. However, no woman wants to be in a relationship with a narcissist who hogs the mirror. Do you know that instant turn-off you get when you meet a guy who thinks he is a divine gift to women?

Yes, you want your man to dress nicely and have a gentleman’s manners. Does your current beau take it to the extreme and can think of nothing else but his vanity? This guy may be used to strutting his stuff around more than one lady.

4 – He Shamelessly Flirts with Other Women Around You

While even the best guy may naturally be a bit flirtatious, it takes a lot of gall if he is checking out other women in your presence. If he is in a steady relationship with you, you certainly have a right to expect his full attention.

The next time you’re out with your lover, watch how he interacts with the opposite gender. Is he always chatting up the pretty servers at the restaurants as if you weren’t even there? Does he act a little too flirty around your best girlfriends?

5 – Clues that go Unsaid

It doesn’t take long for a serial cheater to get a bad reputation around town, leaving a trail of broken hearts and vengeful spirits. So, he moves his nefarious love schemes to another town or even another state. After a while, he’s up to his old tricks, and you may be caught in the crosshairs.

When you’re together in public, have you noticed glances from women you don’t know? Has he ever seemed shifty and nervous when an unfamiliar lady enters the room? Maybe a woman at another table gives you a one-second look of pity, then looks away.

These nonverbal clues might be your signal to rethink your new relationship. He may have forgotten the fury of a scorned woman, but their apparent glares say it all. Before you join their ranks, you might not want to get too attached to him.

6 – You Are the Other Woman

We all know that two’s company and three is a crowd, especially in a love relationship. Perhaps the reason your new romantic interest is acting so peculiar and vague is that he’s already attached. Even worse, he could be married and have a houseful of children in another town.

If you forgo the voice of your conscience and stick with him, things may get ugly. Even if he decides to break up with his other girlfriend or divorce his wife, you may live with a tinge of guilt in the future. If this guy used you to cheat on someone else, the chances are that he will eventually cheat on you.

7 – He Acts Suspiciously

Yes, we’ve all done things that haven’t made us proud, and we don’t advertise them. However, relationships must be built on trust, which means you don’t hide things from each other. If your new beau seems vague about his past, his job, or even what he did yesterday, what is he hiding?

If he guards his phone like a secret service agent, it should be a red flag. Why does he go into the other room when he’s texting or talking on the phone? Does he seem antsy if you ask to borrow his phone, or does he carry it with him even to the bathroom?

When you’re on a date, and his phone is Grand Central Station, is he vague and dismissive when you ask about it? If it was nobody on the phone, then why does nobody keep calling and texting? He could be entertaining another woman by text while you are sitting right across from him.

Be aware of his body language when he talks to you because it may reveal if he’s lying to you. Does he have difficulty making eye contact with you, or does he seem jittery when you ask serious questions? If he is lying to you about one thing, could he be lying about being unfaithful to you?

8 – His Social Media Presence Doesn’t Include You

Do you suspect that your lover may be a serial cheater? A few simple online investigations can offer you clues. Check out his social media pages and notice his profile and picture sections. Why would he still say that he is single and available instead of in a relationship?

Are his photo albums loaded with pictures of you both having fun as a couple? How many photos of unfamiliar women do you see who are still leaving flirty comments to his posts? If he has current profiles listed on prominent Internet dating sites, your relationship is in trouble.

9 – His Conversations are Superficial About Commitment

Forging a committed relationship is nothing to take lightly. While you needn’t get married, it’s assumed that both partners pledge to be faithful and won’t cheat. A serial cheater is so used to cheating that even hearing the word commitment or fidelity makes him nervous.

He has honed his courting skills to perfection, and he tries to say everything he thinks you want to hear. Did he start the early stages of your relationship with crafty clichés like he’s never felt this way before, or can’t breathe without you? He is breathing fine after telling the last thirty women the same lines before dumping them and playing you.

Final Thoughts on Unmasking a Serial Cheater, Once and for All

When you’re falling in love, you hope it’s with someone who loves you in return and will be faithful. If you have a suspicion that your current beau may be a serial cheater, trust your instincts. Refuse to allow him or anyone else to betray your trust because you deserve better.