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What are TDS and GDS?

What are TDS and GDS?

When you are applying for a mortgage, you'll hear the terms TDS and GDS, which sound a bit technical but in reality are fairly straightforward.

TDS is your Total Debt Service ratio, or more simply the amount of financial obligations(credit card payments, car payments, other loans and fees you have to pay),as well as items like your entertainment budget, travel expenses or tuition.You can have no more than 40% of your household income committed when calculating the amount you can pay for the principal interest and taxes on your mortgage.Lenders want to make sure that you can handle your mortgage payments without straining your budget or getting too far into debt.

GDS is your Gross Debt Service ratio, or the amount you can spend for your mortgage principal (P) and interest payments (I), as well as in some  cases property taxes (T) and heating costs (H).  Together these should not exceed 30% of annual income, and can be known as PITH. Lenders use varying calculating criteria and in some cases the GDS can go to 32% or 35%, or even 40% if there are no other monthly obligations.