Traditionally, a loan officer will ask a borrower for their gross monthly income and minimum monthly payments on all revolving or installment debts. The purpose of this accumulation of information is to find the percent of your monthly income which goes toward your debts. Notice the loan officer does not take into account water, electric or gas bills. Monthly utility bills are not used in this calculation.

Two percentages are found using the following method: Take your expected monthly principal and interest payment plus the monthly taxes and insurance on the property and add them together. Divide this number by your gross monthly income. This number represents the percent of your income which will go towards maintaining the loan on the property. To perform your overall "debt ratio", take your monthly principal and interest payment, monthly taxes and insurance and minimum monthly installment or revolving debt payments and add them together. Divide this number by your gross monthly income, and you have your overall debt ratio.

The first number should be less than 0.38 or 38%. The second number should be less than 0.43 or 43%. These are the numbers most institutions will use to accept or reject your application, simply based on income. Obviously, the lower these two numbers are, the better your chances of getting new financing.

If you live on a fixed income and do not have the possibility of increasing your income, paying off some installment or revolving debt is the answer to decreasing your debt ratio.