The FHA allows you to use 31% of your income towards housing costs and 43% towards housing expenses and other long-tem debt. With a conventional loan, the qualifying ratio allows only 28% towards housing and 36% towards housing and other debt.

How to calculate these ratios

1) MORTGAGE PAYMENT EXPENSE TO EFFECTIVE INCOME

Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.). Then, take that amount and divide it by the gross monthly income. The maximum ratio to qualify is 31%.  Example:

• Total amount of new house payment: \$750
• Borrower's gross monthly income (including spouse, if married): \$2,850
• Divide total house payment by gross monthly income: \$750/\$2,850
• Debt to income ratio: 26.32%

2) TOTAL FIXED PAYMENT TO EFFECTIVE INCOME

Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.) and all recurring monthly revolving and installment debt (car loans, personal loans, student loans, credit cards, etc.). Then, take that amount and divide it by the gross monthly income. The maximum ratio to qualify is 43%. Example:

• Total amount of new house payment: \$750
• Total amount of monthly recurring debt: \$400
• Total amount of monthly debt: \$1,150
• Borrower's gross monthly income (including spouse, if married): \$2,850
• Divide total monthly debt by gross monthly income: \$1,150/\$2,850
• Debt to income ratio: 40.35%

You may qualify to exceed these ratios if you have:

• A large down payment

• A demonstrated ability to pay more toward your housing expenses

• Substantial cash reserves

• Net worth enough to repay the mortgage regardless of income

• Evidence of acceptable credit history or limited credit use

• Less-than-maximum mortgage terms

• Funds provided by an organization

• A decrease in monthly housing expenses

You must have a down payment of at least 3.5% of the purchase price of the home.

Besides your own funds, you may use cash gifts or money from private savings. If you can do certain repairs and improvements yourself, your labor may be used as part of a down payment (called "sweat equity"). If you are doing a lease purchase, paying extra rent to the seller may also be considered the same as accumulating cash.