Qualifying Ratios- GDS and TDS

During the preapproval process we do a throughout review of your application criteria so you can be confident in your purchasing power.

Your purchase price is determined by the following qualifying ratio’s.

GDS- Gross Debt Service= The percentage of the borrower’s taxable income that is needed to cover the mortgage payment, property tax, heating and condo fees.

Gross Debt Service Formula:
Principal + Interest + Taxes + Heat+ 50% of Condo fees
DIVIDED BY
Gross Monthly Before Tax Income

TDS- Total Debt Service= the percentage of the borrower’s taxable income that is needed to cover the costs of GDS plus any other monthly debt obligations. This would include monthly car payments, fixed loan payments, and a monthly payment equating to 3% of the balance for revolving credit such as credit cards or unsecured lines of credit

Total Debt Service Ratio Formula:
Principal + Interest + Taxes + Heat + 50% of Condo fees + Other Debt Obligations
DIVIDED BY
Gross Monthly Before Tax Income

If putting less than 20% down payment, the maximum ratio for GDS can be no higher than 39% and TDS no higher than 44%, but may be lower depending on borrower credit. If you are putting 20% or more down payment, there may be alternative options that may consider extending the ratios.

Principal and Interest*: Payments should be based on the applicable qualifying rate, amortization period and loan amount, including the default mortgage insurance premium if applicable

* The qualifying interest rate for all fixed, adjustable, and variable (standard or capped) rate mortgages is the greater of the contract interest rate plus 2 per cent, or the current benchmark rate.

Taxes: Include the monthly property tax amount.

Heat Costs: the heat costs used must be a reasonable estimate taking into consideration factors such as property size, location and/or type of heating system. Mortgage Professionals will know how much to estimate.

Other Debt Obligations: This would include monthly car payments, monthly fixed loan payments, and a monthly payment equating to 3% of the balance for revolving credit such as credit cards or unsecured lines of credit. Secured lines of credit such as a home equity line of credit, will use a different calculation and may depend on specific lenders internal guidelines.

Rental Income: Rental income can be included in the calculation of the debt service ratios and form part of the prospective borrower’s total gross\ income. The amount to be included will depend on if the mortgage application is the subject property in the application or if it not the subject property, and may also depend on specific lenders internal guidelines.

We offer free MOBILE mortgage app that includes an incredible qualifying calculator. Please feel free to go to either one of our contact pages to access.