Total Debt Service Ratio

Total Debt Service (TDS) Ratio

Key takeaways
* The TDS ratio measures the share of gross income used to pay housing and other debts.
* It helps lenders assess whether a borrower can handle additional credit, especially mortgages.
* Typical lender benchmarks range from about 36% (preferred) up to 43% (maximum for most lenders).
* TDS includes housing and non-housing debt; GDS (Gross Debt Service) includes housing-only expenses.

What the TDS Ratio Is

The Total Debt Service (TDS) ratio is a debt-to-income metric that shows what percentage of your gross monthly income goes toward servicing debt. It includes:
* Housing costs (mortgage payments, property taxes, condo fees, homeowner’s insurance)
* Other monthly debt payments (credit cards, auto loans, student loans, personal loans)

A lower TDS suggests more spare income and lower default risk; a higher TDS indicates tighter cash flow and greater lender concern.

Why TDS Matters

Lenders use TDS to decide whether a borrower can manage a new loan payment in addition to existing obligations. TDS is considered alongside credit score, employment history, savings, down payment size, and other underwriting factors. Many lenders prefer applicants with TDS around 36% or lower and typically view ratios above 43% as risky.

How to Calculate TDS

1. Add all monthly debt obligations (housing + non-housing).
2. Divide the total monthly debt by gross monthly income.
3. Multiply the result by 100 to get a percentage.

Formula:
TDS (%) = (Total monthly debt / Gross monthly income) × 100

Example:
* Gross monthly income: $11,000
* Monthly debts: $2,225 (mortgage) + $1,000 (student loan) + $350 (motorcycle loan) + $650 (credit card) = $4,225
TDS = (4,225 / 11,000) × 100 = 38.4%

Calculating TDS in Excel

Use a simple formula referencing your debt and income cells:
* Generic: =(SUM(debt_range) / income_cell) * 100
* Example if debts are in D2:D5 and income in B2: =SUM(D2:D5)/B2*100

TDS vs. GDS

• TDS (Total Debt Service): Includes all housing and non-housing debts.
• GDS (Gross Debt Service): Includes housing-related expenses only (mortgage, property taxes, utilities/condo fees).
  Lenders often review both ratios; GDS focuses on housing affordability, while TDS assesses overall debt burden.

Considerations for Borrowers and Lenders

• Preferred TDS: many lenders aim for ~36% or lower; 43% is commonly cited as an upper limit for mortgage approval.
• Exceptions: some smaller lenders, specialty programs, or borrowers with large down payments, high savings, or long-standing client relationships may be approved with higher TDS.
• A strong credit score, substantial savings, or additional collateral can improve approval chances even when TDS is elevated.
• Regularly reviewing and reducing high-interest debts (like credit cards) can lower TDS and improve borrowing options.

Bottom Line

The TDS ratio is a concise indicator of how much of your income goes to debt payments and is a critical metric in loan underwriting. Keep your TDS as low as possible—ideally near or below 36%—to maximize the likelihood of mortgage approval and maintain healthier financial flexibility.