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9 Aug

What exactly is a GDS/TDS Ratio

General

Posted by: Tracey Brock

 What exactly is a GDS/TDS Ratio?

Are the two standard measures that lenders have relied on to determine one’s ability to pay their mortgage and other debt expenses.

 Gross Debt Service Ratio – GDS

Is the percentage of a person(s) income required to cover or afford, the total payment of a Mortgage including, principal, interest, property taxes, heat and condo fees (if applicable, 50%).  It is calculated using the total monthly gross income divided by the total monthly home expenses as stated above. A maximum allowed GDS for most clients is 30% of the available income.  Some lender’s will waive this maximum if the client’s Fico Score or Beacon score is above the norm.

 Calculated as:                  GDS =  Annual Mortgage Payments + Property Taxes

                                                            Annual Gross Family Income

 

Total Debt Service Ratio – TDS

Is the percentage of a person(s) income required to cover or afford all housing costs (GDS) plus any instalment or credit card debt.  This percentage is calculated as above and includes the monthly payments required for any credit cards, loans, lines of credit, etc.   This is a good indicator to lenders of whether a potential borrower has the ability to cover the proportion of gross income that is already spent on the house as well as the other financial commitments they already have in place.  Typically, the maximum allowed for a GDS is 40% although again, some lenders will go up to as high as 50% TDS depending each individual borrower.

 Calculated as:                    TDS = Annual Mortgage Expenses + Other Debt Payments

Annual Gross Family Income

For example, Mr. and Mrs. Smith have a monthly principal and interest mortgage payment of $1,000 monthly property taxes of $250.00, and monthly credit card and loan payments totalling $500.00.  Their gross family income is $75,000.00. 

 This would give them a GDS 21.6% of  TDS 29.6%. Based on the benchmark of GDS/TDS of 30/40, Mr. and Mrs. Smith appear to be carrying an acceptable amount of debt.