Debt-to-income ratio (DTI) is one of the major factors when lenders decide how much to lend, what your interest rate will be, and how much to charge you for your new home mortgage. Underwriters look at your front-end ratio and your "back-end" ratio. The front-end ratio is your new mortgage payment (principal, interest, property taxes, and insurance, plus other items like homeowner dues if applicable) divided by your gross monthly income. So if your monthly income is $10,000 and your total house payment is $2,500, your top or front end ratio is 25%.
Add your other expenses--a couple of car payments at $400 each and a $200 in credit card payments--to your housing for a total of $3,500 a month, and you have a back or bottom end ratio of 35%. This falls within most lenders' guidelines, assuming that you have decent credit and a little money in the bank.
Playing around with different loan amounts and interest rates on a mortgage calculator can give you an idea of what mortgage amount you could safely apply for. Most calculators assume that front end ratios of up to 32% and back ratios of up to 38% are acceptable. But what happens if your ratios are too high?
It really depends on several different factors. If you would like to discuss further give me a call. I am available nights and weekends.