The mortgage loan approval process is often a mystery, with mortgage applicants seldom knowing why they were accepted or refused. 

Before you start shopping for a house and applying for a mortgage, you need to understand what is financially expected of you.

Lenders will consider two important criteria when deciding how much they can pay when purchasing a home: your gross debt service (GDS) ratio and your total debt service (TDS) ratio. 

While these are basic calculations, knowing how they operate may help you finance a house.
What Exactly Is the Debt-to-Service Ratio?
A debt-to-service ratio is a financial term that compares an individual's or company's total revenue to the total debt that they are currently paying off. This term may be found in business finance, personal finance, and even government finance. 

The computations are straightforward. Your debt-to-service ratio is calculated by dividing your net operating income by your total debt service. 

In layman's terms, your debt service ratio is your income plus any extra revenue sources divided by your present debt burden.

This formula assists a lender in determining if your circumstance is the appropriate risk portfolio for a mortgage. 

The greater your ratio, the riskier it is for a lender to grant you money to purchase a house. Borrowers should aim for a gross debt service ratio of no more than 28%.

This is almost the same as in the case of getting the best same day loans or some other types of loans. 

There, the lenders assess your ability to pay using a credit check, income statement, or employment certificate, and, depending on this, determine the amount of the loan that you can issue as well as the interest rate. 

Sometimes these checks may not be necessary, but if you are familiar with these procedures, it will be easier for you to understand the principle of GDS.

How Does the GDS Ratio Work?

The gross debt service ratio is often used to calculate a borrower's total monthly housing expenditures. It may also be done every year. 

The principal expenditure is the borrower's current monthly mortgage payment.

The ratio is calculated by dividing entire monthly costs by total monthly revenue. The GDS ratio is also used by lenders to estimate how much a borrower can afford to borrow.

This indicator is particularly significant right now since the COVID-19 pandemic has shaken the US populace so severely that the national debt surged by $4,210 billion in the fiscal year 2020, the greatest yearly dollar increase in history. 

Because of this, many have not yet regained their previous level of income. 

Therefore, lenders need to understand that paying for a mortgage will not create problems for you and them.

How Is the GDS Ratio Calculated?

Because the procedure is simple, you may calculate your own GDS ratio to have a better picture of your financial status.

Principal plus Interest plus Taxes plus Utilities divided by Gross Annual Income equals Gross Debt Service Ratio.

That's the whole formula. Very simple and more useful than instant borrowing because in this way you will understand what your ability to pay a mortgage is.

What Does TDS (Total Debt Service) Mean?

In addition to your GDS ratio, your lender will assess your total debt servicing ratio (TDS), often known as the debt-to-income ratio. 

While the GDS ratio considers your housing expenditures, the TDS ratio considers how much you spend each month on all of your loan payments.

The TDS ratio is the calculation used by the lender to determine how much your overall debt, including housing expenses, will be about your yearly income. 

Essentially, the computation takes into account any debt obligations you are repaying as well as your real monthly spending once housing prices are included. 

According to industry standards, this figure should be less than 40% for a borrower to be able to finance the mortgage they want.

How to Avoid an Excessive Debt Service Ratio

You may reduce your debt by raising your down payment or choosing a lower-cost house. You may also discover strategies to make more money. 

Taking on a second or third job may not seem like the best answer, but the advantages of homeownership grow with time. 

Homeownership expenses reduce even more when the principal is paid down.

Avoid Getting a Vehicle Loan Before Getting a Mortgage

An automobile is often the first step toward independence for many young people. 

However, from the perspective of lenders, a vehicle loan represents debt, which may change the calculation used to secure your mortgage. 

Avoid getting a vehicle loan until after you've finalized your mortgage.

Pay Off any Outstanding Debts

The amount of debt you have does impact when it comes to critical things like attempting to qualify for a mortgage. 

Everything adds up, and every loan counts when it comes to the calculation of the different ratios. 

So, before you get a mortgage, try to pay off any outstanding principal and interest debt and, if possible, repay lines of credit.

Boost Your Yearly Income

Increasing your annual revenue is easier said than done, but a salary boost can naturally help relieve many ratio issues. 

You may do this by beginning a side business or seeking your next promotion. 

Furthermore, if you can get a more steady position, such as in government or banking, the lender's ratios will be adjusted.


Low debt service ratios indicate to lenders that you can purchase a property. While this figure isn't perfect, it's a solid starting point for everyone concerned. 

If you stay within the acceptable ratio restrictions, you should have no trouble paying your mortgage.