GDS and TDS Ratios Explained: How Lenders Qualify You

Heard terms like "GDS" and "TDS" during mortgage conversations but aren't sure what they mean? This guide breaks down exactly how lenders determine if you can afford a mortgage and what you can do to improve your numbers.

What Are Debt Service Ratios?

Debt service ratios measure how much of your income goes toward housing and debt payments. They're the primary tool lenders use to assess affordability.

There are two key ratios:

1. GDS (Gross Debt Service) - Housing costs only
2. TDS (Total Debt Service) - Housing costs plus all other debts

GDS Ratio: The Housing Calculation

GDS measures housing costs as a percentage of your gross income.

The formula:

GDS = (Mortgage Payment + Property Tax + Heating + 50% of Condo Fees) ÷ Gross Income × 100

Maximum allowed: Typically 32-35%

Example:

• Monthly income: $8,000
• Mortgage payment: $1,800
• Property tax: $300
• Heating: $150
• Condo fees: $400 (50% = $200)

GDS = ($1,800 + $300 + $150 + $200) ÷ $8,000 = 30.6%

This is within the 32% limit—you pass GDS.

TDS Ratio: The Full Debt Picture

TDS includes ALL debt payments plus housing costs.

The formula:

TDS = (Housing Costs + Car Payments + Credit Cards + Student Loans + Other Debts) ÷ Gross Income × 100

Maximum allowed: Typically 42-44%

Example (continuing from above):

• Housing costs: $2,450 (from GDS)
• Car loan: $400
• Student loan: $200
• Credit card minimums: $100

TDS = ($2,450 + $400 + $200 + $100) ÷ $8,000 = 39.4%

This is within 44%—you pass TDS.

How the Stress Test Affects Ratios

Remember: lenders calculate your mortgage payment using the stress test rate, not your actual rate.

At a 6.5% qualifying rate, payments are higher than at 4.5% actual rate—pushing your ratios higher.

Ways to Improve Your GDS

Lower housing costs:

• Choose a less expensive property
• Increase down payment (smaller mortgage)
• Look for properties with lower taxes/condo fees

Increase income:

• Add a co-borrower
• Document all income sources
• Get a raise or promotion

Ways to Improve Your TDS

Pay down debts:

• Focus on debts with high minimum payments
• Car loans often have larger impact than credit cards per dollar owed
• See our debt consolidation guide

Eliminate debts completely:

• Paying off a credit card removes it from TDS
• Even if balance returns, minimum drops

Restructure debts:

• Lower minimum payments through longer terms
• Consolidate multiple debts

What If You Exceed the Limits?

Options include:

1. Alternative lenders
Some B-lenders allow TDS up to 50% or higher.

2. Private lenders
Private lenders focus more on equity than ratios.

3. Co-signer or guarantor
Someone else's income helps qualification.

4. Larger down payment
Reduces the mortgage amount needed.

Common GDS/TDS Mistakes

Not accounting for all debts:
Lenders see everything on your credit report.

Underestimating condo fees:
Even though only 50% counts, high fees impact significantly.

Forgetting property taxes:
These can be substantial in some areas.

Multiple credit cards:
Even zero balances show available credit that some lenders consider.

FAQ

Q: Does my partner's income count?
A: Only if they're on the mortgage. Their debts would also be included.

Q: Are child support or alimony included in TDS?
A: Yes, these regular obligations count toward TDS.

Q: Do student loans in repayment assistance count?
A: Lenders typically use a percentage of the balance (often 1%) if payments are deferred.

Q: What if I pay my credit card in full each month?
A: Lenders usually use the minimum payment shown on your credit report.

Q: Can investment income help my ratios?
A: Yes, but lenders typically use only 50-80% of investment income.

What's Next

Understanding your debt ratios is essential for first-time buyers and those looking to upgrade or refinance. Calculate your own ratios before applying to avoid surprises.