Loan Qualifying Ratios is the ratio of your fixed monthly expenses to your gross monthly income, used to determine how much you can afford to borrow. The fixed monthly expenses would include PITI along with other obligations such as student loans, car loans, or credit card payments. In addition to your income, a lender will look at your minimum monthly debts to calculate your Loan Qualifying Ratios. The Loan Qualifying Ratios is what will determine "how much" loan you can afford. This is simply the percentage of your monthly gross income (before taxes) that is used to pay your monthly debts. Because there are two calculations, there is a "front" ratio and a "back" ratio and they are generally written in the following format: 33/38.

The front ratio is the percentage of your monthly gross income (before taxes) that is used to pay your housing costs, including principal, interest, taxes, insurance, mortgage insurance and homeowners association fees. The back ratio is the same thing, only it also includes your monthly consumer debt. Consumer debt can be car payments, credit card debt, installment loans, and similar related expenses. Auto or life insurance is not considered a debt. Loan Qualifying Ratios can also adjusted or exceeded if there are item(s) you can payoff, lower interest the interest rate, lower the loan amount, etc. FHA is the most flexible lender regarding debt ratio's. Never rule yourself out of buying a home until you have spoken to a mortgage professional. 

• The ratio of your monthly house payment to your total income, and 
• The ratio of your monthly house payment plus debt payments to your total income. 

There are many different types of loans each with some differences in rules about what income is counted and what expenses are counted. The income to be counted is your gross pay before taxes or deductions for "cafeteria" plans, insurance, or retirement plans. Overtime may be included but it must be averaged over 2 years and be regular. Bonuses may also be included, but again, they must be averaged and expected to continue. Your employer may be asked to verify these items. 

There are two different Loan Qualifying Ratios, Housing-to-Income : This ratio is calculated by dividing your new housing payment by your gross monthly income. Your total housing payment should include principal, interest, real estate taxes, homeowner’s insurance and, if applicable, flood insurance, monthly PMI and/or monthly association dues. Typically, the monthly mortgage payment should be less than 28% of your gross monthly income.  Debt-to-Income : This ratio is calculated by dividing the sum of your total monthly debt (including the new monthly mortgage payment) by your gross monthly income. Typically, your total debts should be less than 36% of your total gross monthly income.