What Is a Gross Debt Service Ratio (GDS)?

Definition

Gross debt service ratio (GDS) is the maximum amount of money you can afford to pay for housing each month. It’s also referred to as a housing-expense ratio or front-end ratio. It’s one of the tools your lender uses to determine whether you can afford a mortgage or a loan.

A real estate agent shows a couple through a house.
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Definition and Example of Gross Debt Service Ratio (GDS)

Gross debt service ratio is the percentage of your gross income that goes toward housing. This ratio is often employed when lenders are determining if you can afford a mortgage and is one facet of your debt-to-income ratio.

  • Alternate names: front-end ratio, housing-expense ratio
  • Acronym: GDS ratio

Your lender determines your GDS ratio by dividing your total housing costs by your gross monthly income. If your GDS ratio exceeds 28% of your income, this could indicate that you’re spending too much on housing costs.

For example, let’s say your gross monthly income is $6,000 and you spend $2,000 on monthly housing costs. Your GDS ratio is 33%, which is higher than most lenders like to see. That doesn't necessarily mean you’ll be denied a loan, but it will factor into your lender’s decision.

Note

If you’re considering buying a house, your GDS ratio can help you determine how much you can afford in monthly mortgage payments.

How Does a GDS Ratio Work?

Before a lender approves you for a loan or mortgage, they want to ensure you’ll be able to make your monthly payments. That’s why your GDS ratio is one of the calculations potential lenders will consider.

To determine your GDS ratio, your lender will divide your monthly housing costs by your gross monthly income. Your monthly rent or mortgage payments will be the primary consideration, but housing costs can also include:

  • Property taxes
  • Utility fees
  • Condo payments

For instance, if you want to buy a home in the next year, you’ll start by getting preapproved for a mortgage. Your lender will want to see that the principal, interest, taxes, and insurance are less than or equal to 28%. The lower your GDS ratio, the more likely you are to get approved for a mortgage.

Note

Just because your lender approves you for a loan or mortgage doesn’t necessarily mean you can afford it. You should also consider your budget and level of comfort with debt before committing to a loan.

Gross Debt Service Ratio vs. Total Debt Service (TDS)


In addition to calculating your GDS ratio, your lender will also consider your total debt servicing ratio (TDS), which is also called debt-to-income ratio. While the GDS ratio looks at your housing costs, the TDS ratio looks at how much you’re spending on all your debt payments each month.

GDS Ratio TDS Ratio
The maximum housing costs you can afford each month The maximum debt payments you can afford each month
Your GDS shouldn’t exceed 28% of your total income Your TDS shouldn’t exceed 40% of your total income
GDS = (Total housing costs x 100) / Gross income TDS = (Total housing costs + Debt payments x 100) / Gross income
Can include your mortgage or rent, utility fees, property taxes, and condo fees Can include loans, credit cards, and lines of credit

While your GDS ratio should stay under 28%, your lender looks for a TDS ratio below 40%.

For example, let’s say your monthly income is $6,000 and you have a $300 car payment, a $250 student loan payment, and a $1,200 mortgage payment. Your total payments are $1,750, which means you have a TDS ratio of 29%.

Key Takeaways

  • Your gross debt service ratio (GDS) is the maximum amount you can afford in housing costs.
  • To determine your GDS ratio, you’ll divide your monthly housing costs by your gross monthly income.
  • Your lender may use your rent or mortgage payments, condo fees, property taxes, and utility fees to determine your monthly housing costs.
  • If your GDS ratio exceeds 28%, this could indicate you’re overextended on your housing costs.
  • In comparison, your total debt servicing ratio (TDS) looks at how much you’re spending on all of your debt payments each month, including housing.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. FDIC. “How Much Mortgage Can I Afford?

  2. Servus Credit Union. “What’s My Debt Service Ratio?

  3. Federal Trade Commission. “The Real Estate Marketplace Glossary.”

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