- 1). Calculate your debt ratio. First, you need to determine what your debt ratio is, so you can see how much you need to decrease it in order to obtain a mortgage. Total your monthly debt, and divide this number by your total gross monthly income.
- 2). Choose debt to pay down. Looking at your outstanding debt balances, and see which balances have the highest interest rates. Focus on paying down these debts first, so you can decrease your overall debt expense. Also, consider paying off accounts with smaller balances so that you can get rid of the debt balance completely.
- 3). Look for money sources. Once you decide which debts to pay down or pay off, you then need to determine where you can obtain the money needed. Review your bank statements and brokerage statements to see if you have enough cash on hand to pay down your debts enough to lower the debt ratio.
- 4). Increase your income. An alternative or additional option is to increase your income. You can increase your income by taking on a second job, selling your crafts, or taking on some freelance projects on the side. As your income increases, it also lowers your debt ratio.
- 5). Ask about a larger down payment. Contact at least three mortgage lenders to determine if putting more of a cash down payment may offset the high debt ratio. Putting more money down means the lender has to loan a smaller mortgage amount and decreases the lender's risk, so they may be willing to approve you with a slightly higher debt ratio.
- 6). Do a cashout refinance. If you're refinancing a current mortgage and paying off or consolidating some of your debt by taking some of the equity in home out, then let the lender know this. When you're using the mortgage to pay off or pay down existing debt the lender doesn't include this debt in the debt ratio calculation. It only includes the new mortgage payment obligation.
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