There are many factors that go into the bank's decision, from how long you've been at your
job to how many credit cards you carry. The most important thing lenders look at, however,
is your ability to meet your obligation to them, which is a function of your income and debt
levels.
To gauge your ability to pay, lenders look at a pair of numbers called the "housing ratio"
and the "total-obligation ratio."
They're not as daunting as they sound. The first is just the percentage of your gross
monthly income that you'll need to spend on housing expenses after you buy the new home. It
includes your mortgage payment, taxes, insurance and maintenance. Lenders will want to see a
ratio of 28% or lower. The total-obligation ratio, meanwhile, is the portion of your income
that goes to covering both your housing expenses and any other obligations, such as credit
cards, car loans and child support. There, your lender will want to see a ratio of 36% or
lower. Both of these ratios are often negotiable upward.
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