One thing that lenders check when you apply for a mortgage, besides your credit score, is your DTI, or, Debt To Income ratio. It’s a number that signifies how much of your income will be spent on your mortgage. If you’re earning $2,000 a month, you simply can’t afford to have a monthly mortgage payment of $1,800. It’s helpful in determining how much house you can afford. Check out this post by JD Roth at Get Rich Slowly for some more info:
This ratio is computed by comparing your expenses to your gross (pre-tax) income. The lower the number, the better. If you make $3,000 a month before taxes, and you pay $300 toward debt, your debt-to-income ratio is 10%.
When a prospective borrower submits her paperwork, the computer evaluates it, applying statistical models to be sure the proposed debt load falls within accepted ranges.