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Perhaps you’ve found your dream home, or maybe you’re still in the exciting stages of looking for the house you want. In either case, you’re likely thinking about getting a mortgage loan—and you may be wondering if the amount of debt you currently have will become a stumbling block to qualifying for a mortgage.

To qualify for a mortgage, a lender needs to be confident that you can responsibly manage the amount of debt that you’re currently carrying along with a mortgage payment. The formula used to determine that is called a debt-to-income (DTI) ratio.

More specifically, a DTI ratio is the percentage of your qualifying monthly income, before taxes, that is needed to cover ongoing debts. This could include student loan payments, a car payment, credit card payments, and so forth. If the DTI ratio is too high, then a lender may see you as a higher risk.

This post will describe DTI in more detail, including how to calculate yours, what lenders typically like to see, and what might be too much debt to buy a house. We’ll also share strategies to manage your debt and lower your DTI ratio to help you qualify for the house of your dreams.

Understanding How Your DTI Ratio Can Affect Your Mortgage Options

The DTI formula is pretty simple. First, make a list of all your debts with recurring payments. Then, if you’re a W2 earner, take your pre-tax monthly income and divide your monthly expenses by this amount. That percentage is your DTI ratio .

Note that, with a mortgage, to calculate your DTI ratio, you’ll need to have a reasonable estimate of monthly property taxes on the home, insurance (homeowners, for sure, and PMI and flood insurance, if applicable), and HOA dues, if applicable. Even if you wouldn’t necessarily pay those bills on a monthly basis, you’ll need the bill broken down into a monthly amount for DTI calculation purposes. (And remember these are just examples. Your actual DTI, as calculated by a lending professional, may differ.)

If your debt-to-income ratio is too high, it can impact the type of mortgage you’ll qualify for. Each mortgage lender will have their own preferred DTI ratio, of course, and lenders can and do make exceptions based on your unique financial situation. Here’s an explainer on desirable debt-to-income ratios from the Consumer Financial Protection Bureau.

Preparing for When You Need a Mortgage

If you know you’ll want to buy a house within, say, the next year or two, it can be beneficial for you to understand how much home you can afford. This will give you time to manage your finances to make getting a mortgage approval easier. Perhaps you can’t pay off all your debt in that time frame, but there are strategic moves to make to position yourself better when mortgage time is upon you. In addition, consider reviewing our home buyers guide to get a better understanding of everything you need to prepare for your mortgage.

First, be careful. There are plenty of debt-related myths, but let’s address two debt-related realities:

1. Having a lot of debt in relation to your income and assets can work against you when applying for a mortgage.
2. If you are consistently late on debt payments, lenders may question your ability to pay your mortgage on time.

Here are a few tips that can help with some of the most common debt challenges:

Student Loan Debt

If you’re looking to take control of your student loan debt, consider refinancing your student loans into one new student loan with a potentially lower interest rate.

This can make paying back your loans easier, because there is just one monthly payment to make. Plus, with a (hopefully) lower interest rate, you can pay back less interest, overall. And, if you’re concerned about your monthly DTI ratio being too high when you go to apply for a mortgage, you may be able to refinance your student loan to a longer term for lower monthly payments, to reduce your current monthly DTI ratio. (Keep in mind, though, that extending your loan term may mean paying more interest over the life of your loan.)

When you refinance at SoFi, you can combine federal loans with private ones, something not many lenders permit. Request a quote online to see what you can save. Note that SoFi does not have any application fees or prepayment penalties.

Credit Card Debt

When you have a significant amount of credit card debt, the monthly payments can negatively impact your DTI ratio.

If you’re concerned about managing credit card debt payments while paying a mortgage, you could even consider focusing your efforts on getting out of credit card debt before you start the homebuying process.

To manage your credit card debt, and ultimately eliminate it, here are a few debt payoff methods to consider

•  The snowball method. List your credit cards from the one with the lowest balance to the one with the highest. Then, focus on paying off the one with the smallest balance first, while still making minimum payments on the rest. When that first card is paid off, focus on the next one on your list and so forth.

•  Tackling high-interest debt first. Using this method, you list your credit cards from the one with the most interest to the one with the least. Then, focus on paying off the credit card with the highest interest while making minimum payments on the rest. Then tackle the next one, and then the next one.

•  Consolidating credit card debt using a personal loan before you apply for a mortgage loan. When you do this, you’ll have just one loan, and personal loans typically have lower interest rates than credit cards (if you qualify). Ideally, keep credit cards open while only using them to the degree that you can pay off in full each billing cycle. And as with all debt payments, make all personal loan payments on time.

By reducing and managing your credit card debt, you can better position yourself for a mortgage loan on the house of your dreams.

Consolidating Your Credit Card Debt with a Personal Loan

Ready to consolidate credit card debt into a personal loan? SoFi makes it fast and easy, and it only takes minutes to apply. Plus, our personal loans have the following perks:

•  Low rates

•  No fees

•  Access to live customer support seven days a week

•  Community benefits; ask about how, if you lose your job, we can temporarily pause your personal loan payments and help you to find a new job

We look forward to helping you achieve your financial goals and dreams. Learn how a personal loan from SoFi can help.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi Mortgages are not available in all states. Products and terms may vary from those advertised on this site. See SoFi.com/eligibility-criteria#eligibility-mortgage for details.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the
FTC’s website on credit.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
PL18224

Living in America? Consider how your average monthly expenses stand in comparison to your country-peeps:

Every year , the average American spends:

•  $18,886 on housing (including property taxes, if applicable)

•  $9,049 on transportation (including gas)

•  $7,203 on food (groceries and eating out)

•  $2,913 on entertainment

All that expense seems to be pretty standard, even before you start chasing the classic American Dream. For that, it’s easy to look to your peers to see how it’s done (even if they’re doing it wrong).

An old-school term for this is “keeping up with the Joneses,” trying to acquire as many things your neighbors next door. Even for the most competitive, that race gets tiresome very fast. Once you realize that the best person to compete against is not others but yourself, you can get more focused on your own financial goals.

Otherwise, comparing yourself with others will leave you in a constant state of distraction. Until then, you may be burning many wasted calories that could be put to better use focused on your own average monthly expenses, spending, budget and goals.

Let’s face it, though: some of this is a result of social media. Part of the need for keeping up with your friends comes from Facebook and Insta envy. Seeing your friends post photos and videos of their latest acquisitions (cars, houses, tech equipment) can light that competitive fire in you (or maybe it’s just plain envy). Sometimes, a message like that from an online friend can be even more powerful and influential than an advertisement from the actual brand.

How Do You Compare?

Data regarding average monthly expenses among peer groups is shown on a website called Status Money . It matches individuals to a peer group based on income, geography and age to compare how other people are doing in relation to your financial situation.

It also lets you compare your spending habits with like-minded people among your peer group. Average monthly expenses include transportation costs, shopping, eating out and other obligations.

How it came about: Status Money cofounder Majid Maksad was formerly a data analyst for Citi; he found
that , even during the Great Recession, Americans were not becoming as frugal and financially careful as you might expect.

In fact, what he found was the complete opposite: continued spending, not by personal choice but mostly driven by writing off bad debts through foreclosures and personal bankruptcies.

What it boils down to: think differently. Train yourself to be more aware.

“It wasn’t a change in behavior that was occurring,” Maksad told Forbes about the stats he discovered. “And that raised the question: ‘How do you get people to change behavior?’”

Perhaps the answer lies in knowing — not assuming — exactly what your peers average monthly expenses are. The results seem to support this. A study on the early users of Status Money found that comparing yourself to those in your peer group (a minimum of 5,000 people) could strongly influence your spending habits (this can also be called FOMO spending). Between September 2017 and April 2018, spending among those surveyed by Status Money declined by about $600 a month.

“People need to know what others are doing with money,” Maksad told CNN Money, “but in a completely secure and anonymous way.”

Comparing Finances To Your Peers

When comparing finances online, completely secure and anonymous is how most people want to roll, particularly Millennials. If you are a part of this largest living generation, here are some broad strokes to give you a general idea of where you stand when compared to your peeps. It’s all according to a survey from the American Institute of Certified Public Accountants:

•  Over three-quarters of Millennials want to have the same clothes, cars and tech gadgets as their friends.

•  Around half of have used a credit card to pay for daily necessities.

•  Over 25 percent of them had late payments or are dealing with bill collectors.

•  Seven out of 10 of those surveyed define financial stability as being able to pay off of their bills each month.

•  Gender difference are also a thing. The study reveals that men are more inclined to keep up with their friends when it comes to material goods. Women, however, tend to be more frugal and consider saving money important.

According to the apartment rental site RentCafe, younger adults may have spent as much as $93,000 by age 30 on rent. During their first decade in the workforce, rent can take up about 45 percent of their income, which can leave next to nothing for savings, investments, and paying off debt. Compare that to GenX adults, who spent only 41 percent of their income on rent per year by age 30 (adjusted for inflation); Baby Boomers spent only 36 percent of their income on rent back in the day.

Are you paying more than 30 percent of your income on housing? The U.S. Department of Housing and Urban Development considers you “cost-burdened.” If you’re spending 50 percent or more on housing, you maybe put in to the category of “severely cost burdened.”

Tips on How To Combat Peer Pressure Spending

Here are a few ways to put blinders on when that peer pressure spending urge comes on:

Get Real

Make a deal with yourself to be honest about your overspending. Don’t try to fool yourself or rationalize away unnecessary purchases. Ask yourself — constantly — “Do I really need this, or am I just trying to keep up with my friends?”

Get Stubborn

Once you have a budget in place, be rigid about sticking to it. If you can’t afford something, don’t let the devil on your shoulder sweet talk the angel on your other shoulder. Step in and take charge. With time, the compulsion to give into your spending impulses will start to weaken and listen to you.

Treat Yourself

If you’re doing a good job of sticking to your budget and not overspending, allow yourself a periodic reward that you promise yourself in advance (once a month, every six weeks, etc.). Go have a meal with friends or buy that pair of shoes you really like. Be sure not to treat yourself so well that you overspend and wind up taking giant steps backward.

Get Help With SoFi Relay

Often, it helps when you can keep tabs on your spending and have access to someone to talk through your expenses without fear or embarrassment. With SoFi Relay you’ll have access to both of these, and more, at no cost!

SoFi Relay gives you insight into your cash flow and spending habits so you can see the full picture of your finances. Additionally, you can connect all of your accounts on one dashboard to get a bird’s-eye view of your balances on the go.

What’s more? You can talk with a financial planner about your spending habits & take a serious look at your expenses to create an action plan to help achieve your financial goals.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. Advisory services offered through `SoFi Wealth, LLC. SoFi Securities, LLC, member
FINRA / SIPC .
SOAD18100

This statistic has been making the rounds, but perhaps you’ve been too busy between work, kids, and just generally being superman or woman to notice it.

According to the Federal Reserve Board’s 2016 Report on the Economic Well-Being of U.S. Households, 44% of all respondents could not cover an unexpected $400 emergency expense, or would rely on borrowing or selling something in order to do so. And believe it or not, that 44% is actually an improvement over previous results that go back to 2013. Still, it’s not making anybody feel any better.

If you’re part of this statistic, rest assured that there are ways to liberate yourself from this kind of burden. Saving money is power.

While the great expense of raising children can make you feel financially insecure, there are ways to work it so that you and your kids come out ahead. Even if you grow your family, there are habits to learn and stick to that can help keep you on top of your finances. Getting a grip on your budget, your finances, and your expenses can make for a happier family and a somewhat less stressful existence.

Here are a few suggestions that can help you save money while raising young children.

Establishing an Emergency Fund

Even if you can only afford to contribute a few dollars a week, an emergency fund can help you deal with the unexpected without necessarily having to resort to a credit card. These funds should be in a separate account (not your checking account) where you can access the funds easily, but not that easily (really, save it only for emergencies).

Treating Your Family to Home Cooking

Cooking in bulk, say on Sunday night, before the week begins, is a good way to have meals on hand and to eliminate the temptation for takeout and ordering in. You can save a lot of money in the process, especially if you cook with good health in mind. It’s also a great group activity for the fam.

Rethinking Your Grocery Budget

Walking through a supermarket is an exercise in resisting temptation. Instead, arrive with a pre-prepared list in hand, and stick to it. Planning meals (see our second suggestion) can get your shopping chore done faster.

You don’t have to get completely frugal—some snacks should be allowed—but if the bulk of your shopping list is planned and practical, you’ll likely see the difference in your budget, and, more importantly, in your family’s health.

Staying at Home

It may seem old-fashioned, but young children usually love old-fashioned fun: board games, charades, watching movies, reading comic books, playing music, taking walks, and telling stories can save you money on most outside activities.

You don’t have to give up the outside world completely, but cutting down could surely make a difference in your monthly outgoing expenses.

Buy Secondhand

New clothes are not always a good solution for kids who quickly outgrow their old clothes. Accepting hand-me-downs, attending yard sales, and checking out online trading can be great ways to avoid the high prices of children’s clothing, and possibly the high price of your own wardrobe as well.

Sharing a Nanny

One of the most draining costs of raising young children is day care and/or a nanny. Nanny shares are actually a thing, because of the need to save money with a baby or young child while still benefiting from high-quality care. Nanny sharing can result in a cheaper monthly nanny bill, and a chance for your child to learn how to interact and get along with other children (hopefully).

Asking Your Doctor and Dentist for Free Product Samples

After your child’s checkup, it can’t hurt to ask if there are any free samples you can take with you. Whatever you get can be one less product you have to buy at the drugstore: eye drops, skin cream, toothbrushes, toothpaste, floss. It’s a doggy bag that saves you money.

Cutting Down on Extracurricular Activities

This doesn’t make you a bad parent. Allowing your child horseback lessons or Little League baseball instead of horseback riding lessons and Little League still gives them the benefits of activity and socialization.

You child will usually let you know which activity is the most important to them. It also teaches your child one of the most difficult lessons to learn in life: we can’t always get everything we want. A great source for free activities for kids: your local library.

Reducing the Amount of Toys you Buy

This may sound cruel, but you may have noticed that your child plays with a toy for a few hours at the very most, and then abandons it (have you seen Toy Story?).

Buying fewer toys will save you money and make your child cherish the toys already there. This tip doesn’t mean that you should never buy another toy again. Check online for sales, discounts, and trades.

Signing up for Free Offers and Coupons

Online commerce wants you! They’ll do anything to attract you and keep you. This often includes getting messages to you for flash sales, discounts, and coupons you can use right from your phone. Check your favorite stores for kids. They’ll be glad to hear from you.

Other Ways to Save Money While Raising Young Children

Need additional guidance? Check out SoFi Relay, our new money tracker. You can see your finances at a glance, and track and categorize your spending.

You’ll be able to track your money and cash flow daily to help hit your targets. The best part? SoFi Relay has absolutely no cost.

The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Automated and advisory services offered through SoFi Wealth LLC, a registered investment advisor.
SoFi can’t guarantee future financial performance.
This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.
Neither SoFi nor its affiliates is a bank.
SoFi Checking and Savings^TM is offered through SoFi Securities, LLC, member FINRA / SIPC . Advisory services offered through SoFi Wealth, LLC, a registered investment advisor.

SOAD18107

It’s not exactly a surprise that the average American has plenty of debt . Households with credit card debt carry an average balance of over $15,000. Frustratingly, these debts often come with exorbitant interest rates.

While some folks are able to manage their debts just fine, some may feel overwhelmed juggling loan payments of varying sizes with due dates scattered throughout the month. When life gets busy, missing a payment is too easy and can land you even further behind. Having multiple debts can be stressful and can make budgeting and planning for the future challenging. And let’s be real: No one likes feeling overwhelmed by multiple debt payments.

For most people, the goal with paying back debt—especially consumer debt, like credit card debt—is to do so as quickly and painlessly as possible. If this is your goal, you have options. One of those options is debt consolidation, where you pay off qualifying debts using a new loan, often called a “debt consolidation loan” or a “debt relief loan.” To determine whether consolidating your debts into one single payment is the right choice for you, read on.

Should I Consolidate My Debts?

It may be worth considering consolidation if it will help you simplify your finances and lower the amount of interest you pay overall on your combined sources of debt. For example, if you have multiple credit cards and each has a high interest rate, consolidating to one loan with a lower interest rate could get you out of debt sooner. That, and you could enjoy the sweet relief of only having one payment to manage for the debt you consolidated.

Consolidating your credit cards to a lower interest rate with a debt consolidation loan could help you get out of debt sooner.

Pros of Debt Consolidation

1) You can streamline multiple debts into one payment, making the payback process easier and more efficient.

2) If you consolidate your debt, you may pay less interest over the life of your loan.

3) Consolidating credit card debt can lower your revolving credit utilization ratio, which is a factor considered by most credit bureaus in the calculation of credit scores. If you lower your balance on several credit cards, but keep them open, you’ll decrease your credit utilization ratio. That’s a good thing! Revolving credit utilization ratios are also often considered by lenders when making credit decisions.

That said, debt consolidation isn’t for everyone. Taking out a new loan may come with fees, so you’ll want to do the math and make sure it’s worth it before moving forward. You should also be mindful of the repayment period and ensure you only finance the debt on a timeline that works for you. Be wary of a loan term that’s too long—even if the loan has a lower interest rate, you can pay more in interest over time with longer repayment periods.

Cons of Debt Consolidation

1) If the loan term is longer than necessary, you could potentially pay more in interest even if the rate is lower.

2) Some debt consolidation programs are scams. It is important to understand that not all loan consolidation tactics are created equal. There have been some unsavory and even fraudulent loan consolidation services that don’t really help get your debt under control. If a lender is asking for money upfront to consolidate your debt, for example, that’s a red flag.

How Do I Consolidate My Debt?

Debt consolidation, in theory, is very simple. You, or a lender, pays off all of your unsecured debts (like credit cards and personal loans) using a new loan. Then, moving forward, you’ll only make one monthly payment on your new loan.

A “debt consolidation loan” or a “debt relief loan” is often just a personal loan. This means that you have the option to seek out personal loans from reputable banks, credit unions, or online lenders. You do not have to work with a debt consolidation services provider that you don’t feel 100% comfortable with. Think of it this way: If it sounds sketchy, it probably is.

When it comes to low-rate personal loans, at SoFi we pride ourselves on transparency and a level of customer service unmatched in the lending industry. Also, our personal loans come with no origination fees, prepayment penalties, or late fees.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit.