TDS versus GDS, what is my mortgage broker talking about? The TDS and GDS are ratios, expressed as percentages, that are used by lenders or banks in order to determine the viability of a buyer to qualify for funding for the purchase of a home.
TDS is an acronym for Total Debt Service. Most lending institutions require that an individual(s) attain a certain TDS, expressed as a percentage, in the range of 35% to 45%. The formula for calculating TDS is as follows:
TDS RATIO = PIT+Loan Payments/Income
Note: PIT is Principal,Interest & Taxes
For Example:
Bob McBob has annual income of $100,000, a car payment of $500/month, with Principal, Interest and Taxes coming to $30,000 per year:
TDS Ratio = (PIT + Loan Payments) / Income
TDS= (30,000+6,000)/100,000
TDS= 36.0%
Since Bob’s TDS is 36%, he falls in the acceptable range between 35% and 45%.
GDS is an acronym for Gross Debt Service. Most lending institutions require that an individual(s) attain a certain GDS, expressed as a percentage, in the range of 27% to 30%.The formula for calculating GDS is as follows:
GDS RATIO = PIT /Gross Income
Note: PIT is Principal,Interest & Taxes
For Example:
Bob McBob has annual income of $95,000 and PIT of $30,000.
GDS = (Principal & Interest + Taxes) /Gross Income
GDS = 30,000/100,000
GDS = 30.0%
Since Bob’s TDS is 30%, he falls just in the acceptable range between 27% and 30%.
The two ratios are usually taken in tandem when the lender is looking at the viability of a potential borrower to carry the debt load. The actual ranges of both TDS and GDS may vary based on the lending institution.
