Understanding GDS and TDS: Key Metrics for Mortgage Approval

When applying for a mortgage, lenders use specific metrics to assess your financial health and determine your eligibility. Two of the most important metrics are GDS (Gross Debt Service) and TDS (Total Debt Service). Understanding these ratios can help you better prepare for the mortgage application process and ensure you meet the necessary criteria.

The GDS ratio is a measure of the percentage of your gross income that goes towards housing-related costs, such as mortgage payments, property taxes, and heating. This ratio helps lenders determine whether you can comfortably afford the home you're looking to purchase.

• Mortgage payments
• Property taxes
• Heating costs

The TDS ratio, on the other hand, includes not only housing-related costs but also all other debt obligations, such as car loans, credit card payments, and student loans. It provides a more comprehensive view of your financial situation and your ability to manage debt.

Lenders typically look for a GDS ratio of no more than 32% and a TDS ratio of no more than 40%. Exceeding these thresholds can make it more difficult to secure a mortgage.

To calculate your GDS ratio, add up your annual housing costs and divide them by your gross annual income. For TDS, include all debt payments in the numerator. Both ratios are expressed as percentages and provide insight into your financial health from a lender's perspective.

It's important to keep your GDS and TDS ratios within acceptable limits to improve your chances of mortgage approval. If your ratios are too high, consider paying down existing debts or opting for a less expensive home.

In summary, GDS and TDS are essential tools for lenders when evaluating your mortgage application. By understanding and managing these ratios, you can better position yourself for success in the home-buying process.