To figure out how much exactly your debt to income ratio is based on your monthly earnings and expenses, here's an illustration just to give you a clearer picture of how this works. For example, Karen's gross monthly salary is $5500:

Front (housing) ratio: $5500 * 0.28 (28 percent) = $1540
Back (housing expense plus other debts) ratio: $5500 * 0.36 (36 percent) = $1980

This means that in order for Karen's bills to stay current and still be able to live according to her means, the highest possible amount allotted for her debts per month is $1980. One thousand five hundred forty dollars is allocated for her mortgage payments. The allowable total payment for her other debts is $440.

How to determine your debt-to-income ratio
First, try to figure out your monthly gross income. Gross income refers to how much you are earning before taxes and other deductions; net income, on the other hand, refers to how much you take home each payday.

Next, make a list of all the debts that you're currently taking care of—mortgage payments, car loan, credit card bills, student loans, personal loans, and the like. Do not include your monthly expenses in the list, like grocery expenses and utility bills. Indicate how much you're paying for each item every month.

Add up everything that you're currently paying for, and divide the total to your current monthly income.

Basing it again on our previous example, say Karen pays for a total of $2345 for her mortgage, plus the other bills that she needs to take care of:

Monthly gross income $5500

Karen's monthly payables:
Medical bills $ 650
Student loan $ 500
Mortgage payment $1000
Blackman's Department Store card $ 195
Total amount of monthly payables $2345

($2345 / $5500 = 0.42, or 42%)

This means that Karen has a high debt-to-income ratio, because she goes beyond the 36 percent ideal rate, or even the rate set by the FHA. Future lenders may not have confidence in her ability to make regular monthly payments to her bills, because she may not have enough resources to take care of them.

Check out these related articles:

How to calculate your debt to income ratio

How to improve your debt to income ratio