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TDS (Total Debt Service) Ratio

What Is the TDS Ratio (Total Debt Service)? The total debt service (TDS) ratio is a debt service measurement used by financial lenders to determine the percentage of gross income previously spent on housing-related and similar payments. Lenders assess the ratio of income to debt based on each potential borrower's property taxes, credit card balances, and other monthly debt commitments, and then compare that amount to the lender's benchmark when considering whether or not to grant credit.

What is the Total Debt Service (TDS) Ratio and How Does It Work?

A total debt service (TDS) ratio is used by lenders to estimate if a borrower can make monthly payments and repay the loan. Lenders consider how much of a borrower's income will be spent on the mortgage payment, real estate taxes, homeowners insurance, association dues, and other expenses when considering a mortgage—or any other sort of loan.

Lenders also look at how much of an applicant's income is already going toward credit card debt, school loans, alimony and child support, vehicle loans, and other debts shown on their credit record. A steady income, on-time bill payments, and a good credit score aren't the only criteria for obtaining a mortgage.

Borrowers with higher TDS ratios are more likely than those with lower ratios to struggle to satisfy their debt obligations. As a result, most lenders will not offer qualifying mortgages to customers with TDS ratios of more than 43%. Instead, they are increasingly preferring a loan approval percentage of 36 percent or less.


  • The total debt service ratio is a lending indicator that mortgage lenders use to determine a borrower's ability to repay a loan.
  • In contrast to the gross debt service ratio, the total debt service ratio covers both housing and non-housing debts and obligations.
  • A TDS ratio of less than 43% is normally required to acquire a mortgage, with many lenders enforcing stricter standards.

Particular Points to Consider

Keep in mind that there are other variables that lenders consider when deciding whether or not to extend credit to particular borrowers. For example, a small lender with less than $2 billion in assets and 500 or fewer mortgages in the preceding year may be able to give a suitable mortgage to a borrower with a TDS ratio of more than 43%.

Among these are credit histories and credit scores. People with higher credit scores are more likely to manage their debts properly, owing a modest amount of debt, making timely payments, and maintaining low account balances.

Ratio of Total Debt Service (TDS) to Gross Debt Service (GDS)

Although the TDS ratio and the gross debt service (GDS) ratio are fairly similar, the GDS does not account for non-housing related payments like credit card debts or auto loans. As a result, the housing expense ratio is also known as the gross debt service ratio. Borrowers should aim for a gross debt service ratio of no more than 28 percent. GDS and TDS are sometimes known as the Housing 1 and Housing 2 ratios, respectively.

In practice, the gross debt service ratio, total debt service ratio, and a borrower's credit score are the main factors considered throughout the mortgage loan screening process. GDS is also employed in other types of personal loan computations, but it is most typically utilized in mortgage lending.

Total Debt Service (TDS) Ratio Example

Adding up monthly debt commitments and dividing them by gross monthly income yields a TDS ratio. To demonstrate how it works, consider the following hypothetical scenario. Assume that a person with a gross monthly salary of $11,000 has the following monthly payments:

  • A mortgage costs $2,225.
  • A student loan of $1,000
  • A motorcycle loan costs $350.
  • A credit card balance of $650

Larger lenders may grant mortgages to customers with higher savings and down payment amounts, in addition to higher credit ratings, if those variables reflect the borrower's ability to repay the loan on time. Lenders may consider extending greater credit to borrowers with whom they have established long-term ties.