Debt Service Ratio | GDS And TDS Calculator

A GDS and TDS mortgage calculator is essential for anyone wanting to get financing for a new home. This calculator can help you determine your debt-to-income ratio, which is one of the key factors in determining whether or not you will be approved for a loan.

Once you’ve entered your numbers into this calculator, you’ll be able to see what your gross debt service ratio (GDS) and total debt service ratio (TDS) is. These debt service ratios will show you what kind of debt load you can realistically handle based on your income.

Knowing your GDS and TDS ratios will make it easier to plan ahead financially and create an achievable monthly budget that leaves room for other expenses like housing costs, taxes, repairs, etc. With this knowledge, potential borrowers are better equipped to make informed decisions about their financial future.

What Does Debt Service Ratio Mean?

The Debt Service Ratio (DSR) is an important tool used by mortgage lenders to measure the debt burden of potential borrowers. It helps them determine if a borrower can afford the loan they are requesting and to assess their risk level as a borrower.

How is Debt Service Ratio Calculated?

DSR is calculated by dividing the total monthly debt payments a borrower makes each month in relation to their income. This includes monthly debt payments for credit cards, student loans, car loans, and any other debt obligations the borrower may have.

When applying for a mortgage loan, it is important to understand what debt service ratio lenders use to determine whether or not you are approved for a loan. Lenders typically consider two types of debt service ratios when evaluating a borrower: gross debt service (GDS) and total debt service (TDS). They want to be confident you can afford your monthly mortgage payments in addition to your housing expenses, car payments and other monthly debt payments.

What Is The Difference Between Gross Debt Service And Total Debt Service?

Gross debt service (GDS) ratio is one formula lenders use to measure your debt. Specifically, it’s your housing costs as a percentage of your income. This would be things like mortgage payments, property taxes and utilities, monthly condo fees if applicable, etc.

Total debt service (TDS) ratio is a formula lenders use to figure out if they should approve you for credit. This is your total debt (not just your housing) divided by your gross income. The elements for this ratio include both housing and non-housing factors.

Knowing these two debt service ratios can help you make informed decisions about taking out a loan and determine if you are a good candidate for the loan that you are requesting. Additionally, understanding debt service ratios can also help lenders assess the risk level of borrowers and determine whether or not they should approve a loan.

How is Gross Service Ratio Calculated?

Gross debt service (GDS) is calculated by adding up all of the monthly debt payments and then dividing them by the borrower’s gross monthly income. This ratio is used to measure how much debt the borrower has in relation to their income, or how much debt can the borrower reasonably afford to pay each month.

How is Total Service Ratio Calculated?

Total debt service (TDS) is calculated by adding up all of the debt payments and dividing them by the borrower’s total monthly income, which includes any non-employment income such as child support or rental income. This ratio is used to measure how much debt a borrower has relative to their overall financial resources.

What Percentage Should Your GDS and TDS Be?

For a successful mortgage application, it is generally recommended that borrowers keep their debt service ratio below 36% for GDS and 44% for TDS. These percentages indicate that debt payments should not exceed 36% of the borrower’s gross monthly income or 44% of their total monthly income in order to be approved for a loan.

The reason lenders look at both your total debt service ratio and your gross debt service ratio is so they can see how much of a monthly mortgage payment you can reasonably afford with your income while still being able to handle your loan expenses and/or credit card debt.

What Happens If I’m Over The Debt Service Ratio Limits?

Being over the limits for your debt service ratios does not necessarily mean you won’t be approved for a mortgage. Take a look at your debt payments again. If you’re paying well over the minimum payment each month, consider lowering the amount if it means you’re still paying down debt and your TDS and GDS ratios fall a few percentage points into the recommended range. 

You can also review your mortgage options and find a way to lower the monthly mortgage payment for the home you want. Paying bi-weekly instead of monthly will slightly lower your payments. If you originally calculated payments based on 25-year amortization, selecting 30 years will also decrease your payment amount. And of course, saving up for a higher down payment will help too.

If the amount you’ve saved for a down payment is 10-15%, it’s worth thinking about how long it will take to get to the 20% mark. If you can do that without pushing off a home purchase too long or don’t mind waiting another year, doing this will help to lower your mortgage payments considerably. The extra amount you save will be deducted from the purchase price and you also won’t need mortgage insurance.

Different lenders can offer different loan types to their customers. Similarly, some lenders may consider other forms of non-employed income in your debt ratio calculation as a factor in the cost. If you’re really close to the limit but don’t want to lower your monthly debt payment amounts, ask a few of your preferred lenders and see what they recommend.

How To Use The GDS And TDS Calculator

Using this calculator to determine your gross debt service ratio and total debt service ratio is very easy! You’ll be able to see if you’re in a healthy range in seconds (if you have your values ready to enter).

First, you’ll enter your gross annual household income under the Income Information section.

Next up is the Housing Costs section. Here, you’ll fill in the estimated monthly mortgage payment for the home you want to buy, the property taxes, estimated utility costs, and condo fees if applicable.

Under the Debt Payments section you’ll then enter your minimum monthly debt payments for your credit card(s), line of credit, car payments, and any other monthly payment going towards debt.

That’s it! After you’ve entered in all of your values, you’ll see your debt ratio populate and it will show you the percentage for your gross debt service ratio as well as your total debt service ratio.

If the ratios are within the recommended range, the calculator will let you know that the value shown is accepted by most lenders.