Let’s walk through an example of a homebuyer’s GDS and TDS ratios. In this example we’ll say that the homebuyer has a gross income of $90,000 per year, or $7,500 per month.
They are looking to purchase a home that would require a mortgage payment of $1,500 per month, property taxes of $250 per month, and heating costs of $100 per month. This means their monthly housing-related expenses total would be $1,850.
They also have a car loan payment of $300 per month and credit card payments of $150 per month, for a total monthly debt obligation of $450.
To calculate this homebuyer’s GDS ratio, we divide their monthly housing expenses by their gross income:
GDS ratio = (Monthly housing expenses ÷ Gross income) x 100%
GDS ratio = ($1,850 ÷ $7,500) x 100%
GDS ratio = 24.67%
To calculate the homebuyer’s TDS ratio, we add up all of their monthly debt obligations and housing-related expenses and divide by their gross income:
TDS ratio = (Total monthly debt obligations ÷ Gross income) x 100%
TDS ratio = (($450 + $1,850) ÷ $7,500) x 100%
TDS ratio = 30.67%
In this case, the homebuyer’s GDS ratio is 24.67% and their TDS ratio is 30.67%. Since both ratios are well below the preferred maximums they may be eligible for a mortgage loan and are likely to be offered more favorable terms, such as lower interest rates or longer repayment periods.