Gross debt service ratio and Total debt service ratio

Gross debt service ratio and total debt service ratio

Gross Debt Service Ratio (GDSR) and Total Debt Service Ratio (TDSR).

 

The amount of mortgage you may qualify for depends on two things: income and the amount of debt you are carrying.
Financial institutions use two different ratios to measure your borrowing ability. The first is your Gross Debt Service
Ratio (GDSR). The second is your Total Debt Service Ratio (TDSR).

Gross Debt Service Ratio (GDS)

GDS

Interested in a mortgage ?

Gross Debt Service Ratio(GDS) is the percentage of your gross income (before deductions such as income tax) required to cover home-related costs, such as:

gds RATIO


Principal and Interest Monthly    $915.59
Heat Monthly                                $75.00
Taxes Monthly                            $125.00
Total for debt service               $1,115.59
Gross Monthly Income            $3,500.00


GDS Ratio calculation
$1,115.59 / $3,500 =.318
GDS Ratio                                           31.8%
In the above example, the homeowner is spending 31.8% of their household income on housing expenditures. To qualify for a mortgage, most lenders traditionally require that your GDSR is at or below 32%.As of October 2006, the insurers and some lenders will allow a GDSR of up to 35%.
This, coupled with the option of extended amortizations,significantly increases the consumer’s borrowing power. Extended amortizations are not available for insured mortgages.


If you have any questions about this section, please reach out to me and I’d be happy to help.

Total Debt Service Ratio

Total Debt Service Ratio (TDS) is the percentage of gross income required to cover home-related costs (mortgage payments, property taxes, heating, and 50% of condo fees, if applicable), plus all of your other debts, such as:

Example:

Principal and Interest Monthly   $915.59
Heat Monthly                               $75.00
Taxes Monthly                           $125.00
Car Loan Monthly                      $200.00
Credit Card Payments Monthly   $50.00
Total for debt service              $1,365.59
Gross Monthly Income           $3,500.00

TDS Ratio calculation
$1,365.59 / $3,500 =.3902
TDS Ratio                                       39.02%

In the above example, the homeowner is spending 39.02% of their household income on housing expenditures and other debt. In order to qualify for a mortgage, traditionally lenders have required that your TDSR be at or below 40%. Since October of 2006, some insurers and lenders will allow up to 42% TDSR and in the case of a borrower with exceptional credit, may allow for a TDSR of up to 44%.

 

Compare the results with the estimated costs for your new home

Estimate what the costs will be for your new home, including all the ones described in the GDS and TDS ratios. If the total costs you
estimate are lower than the maximum amounts you calculated, you will probably qualify for a mortgage loan with the lender.
If you find that your debt service ratios are higher than you’d like, some of your options include:
• looking at homes in a lower price range
• saving for a larger down payment
• reducing your debts