A mortgage company will be looking at your credit report, bank statements, pay stubs (W2/1040), IRS transcripts (4506-T), and verify your employment for the foreseeable future to make sure you can pay your bills.

There are two ratios that they will calculate: top and bottom.

Your top ratio is your monthly expenses (without housing) over your monthly qualifying income. Your bottom ratio is monthly expenses plus housing over monthly qualifying income.

Monthly qualify income = Salary over 12 or Hourly Rate times Total Hours (overtime counts when consistent over two years) per Week times 4.33.

For example, you make $25 an hour with 35 hours per week for the last two years. Your monthly qualifying income will be 25 * 35 * 4.33 or $3788.75 per month.

Salary example, you made $35,000 last year and $37,500 this year. Your monthly qualifying income will be (35,000 + 37,500) / 24 or $2,900 per month.

Now to calculate your top ratio you take your outgoing expenses (sans housing) and divide them by your monthly qualifying income

For example, you have a car payment of $250, credit card payment of $290. Your monthly qualifying income is $3,000. Your top ratio will be (250 + 290) / 3,000 or 18%.

Now to calculate your bottom ratio you add in your housing costs.

For example, you have a car payment of $250, credit card payment of $290. Your rent is $800. Your monthly qualifying income is $3,000. Your bottom ratio will be (250 + 290 + 800) / 3,000 or 45%.

Depending on the product you are looking at lenders will have guidelines as to what are good ratios. For example, to get a conventional loan product a lender will allow around 28% TOP and 36% BOTTOM. To get a FHA (government) loan a lender will allow around 29% TOP and 43% BOTTOM.

As long as you check all the boxes based on the product (e.g. for conventional 640 credit, 20% down, 80% LTV (amount of loan over house value), 2 years of documented income) then your Rate/APR will be fine.