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Improve your debt-to-income ratio to get a good mortgage

If you want to buy a home, something you have to know is your debt-to-income ratio. A ratio that is skewed too much toward debt is sure to make it more difficult for you to obtain a mortgage.

The problem is that mortgage lenders don't always calculate your rates in the same way. Lenders might not have a maximum debt-to-income ratio, but they do have stringent guidelines. For instance, most won't lend to those with housing debt over 33 percent of their monthly incomes. In all, most won't lend to you if you have more than 38 percent of your income going to debt. This helps protect the lenders from giving money to those who may struggle to pay it back.

However, there are ways to offset this ratio in your favor. Having an excellent credit score, showing you can pay back debts on time, having a down payment that is larger than required or showing that you have maintained a similar payment can all help you get the mortgage you want.

To improve your debt-to-income ratio, you can do two things. One is to increase your income. The other is to reduce your debt. For instance, if you have student loans but could pay them off, this could substantially reduce your debt.

Before you do that, though, make sure your lender counts that debt in your overall debt. Not all do, so it's something you will need to address before you decide what to pay off. If you can take on more work, then increasing your income will have a similar effect, but it will take more time.

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