Debt Ratios (GDS / TDS Ratios)
Lenders have long relied on two standard measures of one’s “ability to pay” their mortgage:
- Gross Debt Service (GDS): The percentage of the borrower’s income that is needed to pay all required monthly housing costs (mortgage payments, property taxes, heat and 50% of condo fees).
- Total Debt Service (TDS): The percentage of the borrower’s income that is needed to cover housing costs (GDS) plus any other monthly obligations that an individual has, such as credit card payments and car payments.
The acceptable ratios for both have generally been 32% and 40% respectively.
For people with very high credit scores, GDS requirements are often waived and the TDS maximum is slightly higher (44% as of January 2011).