Gross Debt Service Ratio (GDS) What it is The Gross Debt Service (GDS) ratio—also called the housing expense ratio or front-end ratio—measures the share of a borrower’s income that goes toward housing costs. Lenders use it to judge whether a borrower can afford a mortgage and to help determine the loan size. Key point: lenders commonly prefer a GDS of 28% or less. Explore More Resources
What counts in GDS GDS compares housing expenses to gross (pre-tax) income. Typical housing expenses included are:
Mortgage principal and interest
Property taxes
Home insurance
Utilities (in some calculations: heat, electricity, water, gas) GDS can be calculated monthly or annually; be consistent when adding income and expenses. Explore More Resources
Formula and example Basic formula:
GDS = (Principal + Interest + Taxes + Insurance + Utilities) / Gross Income Example:
* Monthly mortgage payment: $1,000
Annual property taxes: $3,000 → monthly = $250
Gross annual income: $45,000 → monthly = $3,750
GDS = (1,000 + 250) / 3,750 = 1,250 / 3,750 = 0.333 → 33.3% Explore More Resources
At 33.3% this example exceeds the typical 28% guideline and may reduce mortgage approval odds. How lenders use GDS
* Assesses housing-cost burden relative to income.
* Helps set the maximum mortgage amount a borrower can reasonably afford.
* Combined with other underwriting metrics (especially the Total Debt Service ratio and credit score) to decide approval and loan terms.
Related metric: Total Debt Service (TDS)
TDS (or back-end ratio) includes all monthly debt payments (housing plus consumer debt such as credit cards, car loans, student loans) divided by gross income.
Lenders generally prefer a TDS of about 36% or less. Explore More Resources
Special considerations
* Self-employed borrowers: lenders often average income over two years rather than using a single-year figure.
* Different lenders may include or exclude certain utility costs or insurance—ask how they calculate GDS.
* Credit score and complete credit history remain crucial; a good GDS alone doesn’t guarantee approval.
How to lower your GDS
* Increase your down payment to reduce the mortgage principal.
* Choose a less expensive home or a longer amortization (if available) to lower monthly payments.
* Shop for lower property tax areas or cheaper insurance where feasible.
* Increase household income (raise, additional work, side income).
* Pay down or refinance other debts to improve TDS and overall affordability.
Quick FAQs Q: What is a “good” GDS?
A: Around 28% or less is the common guideline. Q: Is GDS the only factor lenders look at?
A: No—TDS, credit score, employment stability, and assets are also evaluated. Explore More Resources
Q: Can utility costs be included?
A: Some lenders include utilities in GDS; confirm which items a lender counts. Takeaway GDS is a front-line affordability measure lenders use to evaluate housing cost relative to income. Keeping GDS near or below 28% and managing total debt helps improve mortgage approval chances and access to better loan terms. Explore More Resources