Gross Debt Service Ratio and Total debt service ratio

How the banks calculate how much house you can afford They use GDS and TDS 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). GDS RATIO (Gross Debt Service Ratio): The percentage of gross annual income required to cover payments associated with housing. Payments include mortgage principal, interest, property taxes and sometimes include secondary financing, heating, condominium fees or pad rent. TDS RATIO (Total debt service ratio): The percentage of gross annual income required to cover payments associated with housing and all other debts and obligations, such as car loans and credit cards.  Example - GDS - Gross Debt Service Ratio Monthly mortgage payment:  (principal and interest)* $1,191.84 Property taxes: (monthly) $150.00 Heating costs: (monthly) $105.00 Other:** $50.00 Total monthly payments: $1,496.84 Gross monthly household income: $6,000.00 GDS = Total monthly payments  (x 100)            Gross monthly income   GDS = $1,496.84  (x 100) = 24.95%            $6,000.00    * Principal and interest must be based on the total insured loan amount, including CMHC insurance premium (if you choose to add the premium to your mortgage and not to pay the premium up front).  Mortgage payment is based on a $200,000 mortgage, 5.25% interest rate, 25 year amortization. ** If you are purchasing a condominium, you must include 50% of the monthly condominium fee.  If the mortgage is for a mobile home (chattel mortgage) include 100% of the monthly site (pad) rent.   Example - TDS - Total Debt Service Ratio Total monthly housing payments:  (from GDS calculation):* $1,496.84 Other debts:  (personal loans, car loans, credit cards, etc.):  $350.00 Total monthly debts: $1,846.84 Gross monthly household income: $6,000.00 TDS = Total monthly payments  (x 100)            Gross monthly income   TDS = $1,846.84  (x 100) = 30.78%            $6,000.00