The ratio affects your buying power… Your debt to income ratio is a simple way of showing what percentage of your income is available for a mortgage payment after all other continuing obligations are met. The ratio is one of the many things a lender considers before approving your home loan. A qualifying ratio of 28% is indicates the maximum percentage of your monthly gross income that the lender allows for housing expenses.
The total includes payments on the loan principal and interest, private mortgage insurance, insurance, property taxes, and other dues.
The lender will use roughly 36% of your monthly gross income for housing expenses plus recurring debt.
Recurring debt includes credit card payments, child support, car loans, and other obligations that will not be paid off within a relatively short period of time.
Debt to Income Example
Yearly Gross Income = $45,000 / Divided by 12 = $3,750 per month income
$3,750 Monthly Income x .28 = $1,050 allowed for housing expense
$3,750 Monthly Income x .36 = $1,350 allowed for housing expense plus recurring debt.
The above is a rough guide and may vary among mortgage companies.