Calculating Debt-to-Income

• Your lender will calculate your debt-to-income ratio by totaling your monthly debt obligations and your gross monthly income. Your lender will then divide the first number by the second, coming up with your ratio. For instance, if your monthly debt totals $2,000 and your gross monthly income $5,000, your debt-to-income ratio will stand at 40 percent.
  
  

What Lenders Look For

• Most lenders want their borrowers to have monthly debts, including their estimated mortgage payments, that total no more than 36 percent of their gross monthly incomes. There's a reason for this: Lenders figure that borrowers are less likely to default on their monthly mortgage payments if their monthly debt is not such a financial burden.
  
  

Reducing Your Ratio

• You have three ways to reduce your debt-to-income ratio: You can either reduce your monthly debt obligations, increase your gross monthly income or take on a combination of the two. If you can't do any of these, though, you might not be ready to become a homeowner. Taking on a mortgage payment is a significant financial responsibility. If you have too much debt, or too low of a monthly income, making those payments can leave you in a deep financial hole.
  
  

Other Considerations

• Mortgage lenders don't only consider debt-to-income ratios when deciding who does and doesn't get mortgage financing. They also look at your credit score -- a three-digit number that sums up how well you've paid your bills in the past -- your savings and your employment history. If you have a high credit score, above 740 on the popular FICO credit-scoring system, and a large amount of savings, you might be able to qualify for a home loan even with a higher debt-to-income ratio.