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.

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.

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%

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.

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.

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.