# Total Debt Service (TDS) Ratio: Definition, Calculation, and Example

## What Is the Total Debt Service (TDS) Ratio?

The total debt service (TDS) ratio is a financial measure used to see how much of a person’s income goes toward paying debts. Lenders use it especially in the mortgage industry to determine if a borrower can handle new loans. It looks at housing costs and other debts like credit cards. A lower TDS ratio is better because it shows a borrower has more income available and is less risky. Most lenders prefer a TDS ratio within a certain range, and exceeding that range can make it harder to get approved for a loan.  

### Key Takeaways

*   The total debt service (TDS) ratio is a debt-to-income metric used by lenders to assess borrowing capacity.  
    
*   TDS includes both housing and non-housing debts, unlike the gross debt service (GDS) ratio.  
    
*   A TDS ratio below 43% is typically needed for mortgage approval, with 36% being a preferred benchmark.  
    
*   Borrowers with lower TDS ratios are more likely to secure loan approval.  
    
*   Lenders consider TDS, GDS, and credit scores as key factors in the loan underwriting process.

## Understanding the Function of the Total Debt Service (TDS) Ratio

When applying for a [mortgage](https://www.investopedia.com/terms/m/mortgage.asp) or any other type of loan, all borrowers should be aware that the total debt service (TDS) ratio is a key factor driving approval or rejection—and it is just as important as a stable income, timely bill payment, and a strong [credit score](https://www.investopedia.com/terms/c/credit_score.asp).

Remember, the lower your TDS ratio, the better your chances of approval. Borrowers with higher TDS ratios are more likely to struggle to meet their debt obligations than borrowers with lower ratios.

All lenders will compare your TDS to their [benchmark](https://www.investopedia.com/terms/b/benchmark.asp) TDS range—usually from 36% to no more than 43%—before they decide whether you can manage an additional monthly payment on top of all other bills. Many lenders want a TDS ratio of 36% or less for loan approval and usually reject those over 43%.  

> **Important**
>
> Lenders prefer borrowers with total debt service (TDS) ratios of 36% or less; borrowers with TDS ratios that exceed 43% are rarely approved for mortgages.

## Practical Example of Calculating the TDS Ratio

To calculate your TDS ratio, add up your monthly debts and divide by your gross monthly income. Here's a hypothetical example: an individual with a gross monthly income of $11,000 and monthly debt obligations of $4,225 ($2,225 for a mortgage; $1,000 for a student loan; $350 for a motorcycle loan; $650 for a credit card balance).

Divide the total debt obligation of $4,225 by income of $11,000 (in the percentage formula below) to get a TDS ratio of 38.4%, which is not much higher than the low benchmark (36%) and well below the max (43%). This individual would most likely get a mortgage.

## Step-by-Step Guide to Calculating TDS Ratio in Excel

The total debt service (TDS) ratio can also be calculated in Excel:

*   Excel formula to calculate TDS ratio: **\=SUM(debt/income)\*100**
*   In the example above (gross income of $11,000 and debt obligations of $4,225), the Excel formula would be: **\=SUM(4225/11000)\*100** (which equals 38.4%).

## Comparing TDS Ratio and GDS Ratio: Key Differences

The total debt service (TDS) ratio is similar to another lender-used metric, the [gross debt service (GDS)](https://www.investopedia.com/terms/g/grossdebtserviceratio.asp) ratio. The difference between TDS and GDS is that GDS does not factor any non-housing payments—such as credit card debts or car loans—into the equation.

Because it reflects housing expenses only, the GDS ratio is also referred to as the [housing expense ratio](https://www.investopedia.com/terms/h/housing_expense_ratio.asp). GDS may be used in other personal loan calculations, but it is most commonly used in the mortgage lending process. (You may also hear GDS referred to as Housing 1 ratio and TDS as Housing 2 ratio.)

In practice, TDS, GDS, and credit scores are key components analyzed in the mortgage [loan](https://www.investopedia.com/terms/l/loan.asp) [underwriting](https://www.investopedia.com/terms/u/underwriting.asp) process.

## Important Considerations for Lenders and Borrowers

Besides TDS and GDS ratios, lenders consider other factors when deciding on advancing credit.

For instance, a small lender—one with less than $2 billion in [assets](https://www.investopedia.com/terms/a/asset.asp) and 500 or fewer mortgages in the past 12 months—may offer a qualified mortgage to a borrower with a TDS ratio exceeding 43%.

Of course, all lenders consider credit histories and [credit scores](https://www.investopedia.com/terms/c/credit_score.asp). People with high credit scores tend to manage their debts more responsibly; they hold a reasonable amount of debt, make payments on time, and keep [account balances](https://www.investopedia.com/terms/a/accountbalance.asp) low.

Larger lenders may also be more likely to approve mortgages for borrowers with large savings accounts, especially if they can make larger down payments. Lenders may also consider granting additional [credit](https://www.investopedia.com/terms/c/credit.asp) to borrowers with whom they have long-standing relationships.  

## How Do You Calculate Total Debt Service (TDS) Ratio?

To calculate TDS: first, add up all monthly debt [obligations](https://www.investopedia.com/terms/o/obligation.asp); then, divide that total by gross monthly income in this percentage formula: (DEBT divided by INCOME) multiplied by 100. If you prefer to calculate in Excel, the formula looks like this: =SUM(debt/income)\*100.

## How Low Should My TDS Be for a Mortgage?

To be approved for a mortgage, you should have a TDS ratio of no more than 43% (the maximum most lenders allow)—but ideally, your TDS should be as close as possible to 36% (the low end of the benchmark range that lenders prefer).

## What Is the Difference Between TDS (Total Debt Service) and GDS (Gross Debt Service)?

TDS and GDS are similar ratios, but the difference is that GDS does not factor any non-housing payments—such as credit card debts or car loans—into the equation.

> **Article Sources**
>
> 1.  Chase.com. “[What Do Lenders Consider a Good Debt-To-Income Ratio](https://www.chase.com/personal/credit-cards/education/basics/what-is-debt-to-income-ratio-and-why-it-is-important)?”