What are debt to income ratios?
Simply stated, your debt to income ratio (or DTI) is derived by dividing your monthly debt payments by your gross monthly income. Lenders look at this factor to determine how able you are to take on a particular mortgage amount and gauge how good you are at managing your monthly debt obligations. A lender also wants to make sure you are not allocating above a certain percentage of your income toward your home as it may be both unsustainable for you, but also increases your chances of not be able to make your monthly payment should you encounter any sort of financial hardship.
To calculate your DTI, first add up all of your monthly expenses and payments (i.e. rent, car payment, credit card bills, etc.). Second, divide that number by your GROSS monthly income (income before taxes). This number, expressed as a percentage, is your DTI. The lower this number, the better. However, different loan products have different specifications so you'll want to see which product(s) will work best for you given your individual situation.