Borrowers’ income is one key factor that lenders use to determine how much they are willing to lend you for a mortgage. Lenders do this using debt service ratios, which show them whether you have the capacity to take on more debt and repay the mortgage.
The gross debt service ratio (GDS) is the amount of your pre-tax income that would be spent on household debts. They will look at the mortgage payment, property taxes, heating, and 50% of condo or maintenance fees (if applicable). Typically, the maximum allowable GDS ratio is 32% for uninsured mortgages and 39% for insured mortgages.
The total debt service ratio (TDS) is the pre-tax income you would spend to service all debts. In addition to the debts that make up the GDS ratio, TDS will also account for student or car loans, child or spousal support, and credit card or line of credit payments that you may have. Typically, the maximum allowable TDS ratio is 40% for uninsured mortgages and 44% for insured mortgages.