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There are terms used in the mortgage world that may cause some confusion:  total debt service and gross debt service. They are not the same thing!

Mortgage lenders look at several bits of information about your finances before they are able to determine the amount they are willing to lend you to buy a home. Your household income is a major factor, but there are two other numbers that matter a lot, too: gross debt service and total debt service.

Gross debt service (GDS) is the percentage of your monthly income needed to cover all your housing costs, including the principal and interest on your (new) mortgage as well as the property taxes and heating. If you are buying a condo or townhome that require monthly fees, you need to add in 50% of that number as well.

If you add up all your monthly housing costs, divide that number by your gross monthly income (gross means before deductions!), then divide by 100, you’ll get your gross debt service ratio.

Most lenders want that number to be under 35% to qualify for a mortgage.

The total debt service (TDS) is the percentage of your income you use each month to cover all of your debts – that means you add up the monthly amounts of your mortgage payment, student loans, credit cards, spousal support – all of it. Then you divide that figure by your total monthly income, divide by 100, and that’s your TDS ratio.

Most lenders want your TDS to be under 42%.

These ratios are just one part of qualifying for a mortgage. The more you understand, the easier it will be for you to buy a home.

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