how the gds ratio works
the gross debt service ratio is typically a comprehensive measure of all of a borrower s monthly housing expenses it may also be calculated on an annual basis the borrower s current monthly mortgage payment is the primary expense other expenses may also include monthly property tax payments monthly home insurance payments and utility bills 2total monthly expenses are divided by total monthly income to calculate the ratio as a rule of thumb lenders typically require a gross debt service ratio of 28 or less 1 lenders also use the gds ratio to determine how much the borrower can afford to borrow using an online mortgage calculator to estimate homebuying costs can give you an idea of what you might be able to afford gross debt service ratio formula and calculationthe formula that s used to calculate the gross debt service ratio is fairly straightforward it looks like this gross debt service ratio principal interest taxes utilities gross annual incomeutilities can include any amounts paid toward electric water or natural gas service if you re planning to purchase a property you may be able to contact the electric company water company and gas company to get information about average utility costs you can also look up information about local property taxes to estimate what you might pay for those example of gross debt service ratioas an example consider two married law students who have a monthly mortgage payment of 1 000 and pay annual property taxes of 3 000 with a gross family income of 45 000 this would result in a gds ratio of 33 based on the benchmark of 28 this couple appears to be carrying an unacceptable amount of debt and are not likely to be approved for a mortgage loan given their current situation if you re applying for a mortgage as a self employed person the lender may consider the average of your last two years worth of income versus a single year of earnings 