Lenders use a few key factors when assessing borrowers and their ability to manage mortgage payments. The main factors being the gross debt service ratio (GDS) and total debt service ratio (TDS).

Gross debt service ratio (GDS)

The gross debt service (GDS) ratio is a debt service measure that financial lenders use to assess the proportion of housing debt that a borrower is paying in comparison to their income. The gross debt service ratio is one of several metrics used to qualify borrowers for a mortgage loan and determine the amount of principal offered.

Total debt service ratio (TDS)

The total debt service ratio (TDS) is a debt service measurement that financial lenders use as a rule of thumb when determining the proportion of gross income that is already spent on housing-related and other similar payments.

Looking at your debt-to-income ratio is one of the ways that creditors establish how qualified you are for a mortgage loan. Your debt-to-income ratio is determined by taking your monthly debt (think current mortgage payments, student loans, car loans, credit cards, etc.) and divide them by your gross monthly income. According to the Federal Consumer Finance Protection Bureau, “studies of mortgage loans suggest that borrowers with a higher debt-to-income ratio are more likely to run into trouble making monthly payments”.

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