Gross Debt Service Ratio - GDS

What is the 'Gross Debt Service Ratio - GDS'

The gross debt service ratio (GDS) is a debt service measure that financial lenders use as a rule of thumb to give a preliminary assessment about whether a potential borrower is already in too much debt. Receiving a ratio of less than 30% means that the potential borrower has an acceptable level of debt.

Calculated as:

Gross Debt Service Ratio (GDS)

BREAKING DOWN 'Gross Debt Service Ratio - GDS'

For example, Jack and Jill, two law students, have a monthly mortgage payment of $1,000 (annual payment of $12,000), property taxes of $3,000 and a gross family income of $45,000. This would give a GDS of 33 %. Based on the benchmark of 30%, Jack and Jill appear to be carrying an unacceptable amount of debt.

Keep in mind that this ratio is only a very rough benchmark. The acceptance of a loan application is not solely determined by this ratio. Since this is a very simple ratio, there are a lot of subsequent factors that lenders consider. For example, even though Jack and Jill's GDS is above the benchmark, a lender may still lend to Jack and Jill because of their future earning potential as lawyers. When combined with other personal information, GDS can be a good way for lenders to screen borrowers.

RELATED TERMS
  1. Total Debt Service Ratio - TDS

    A debt service measure that financial lenders use as a rule of ...
  2. Qualifying Ratios

    A set of ratios that are used by lenders to approve borrowers ...
  3. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  4. Back-End Ratio

    A ratio that indicates what portion of a person's monthly income ...
  5. Capitalization Ratios

    Indicators that measure the proportion of debt in a company’s ...
  6. Centipede Game

    An extensive-form game in game theory in which two players alternately ...
Related Articles
  1. Economics

    Explaining Debt

    Debt is any amount a borrower owes a lender.
  2. Investing Basics

    Understanding Leverage Ratios

    Large amounts of debt can cause businesses to become less competitive and, in some cases, lead to default. To lower their risk, investors use a variety of leverage ratios - including the debt, ...
  3. Trading Strategies

    Financial Ratios to Spot Companies Headed for Bankruptcy

    Obtain information about specific financial ratios investors should monitor to get early warnings about companies potentially headed for bankruptcy.
  4. Credit & Loans

    Explaining Non-Recourse Debt

    Non-recourse debt limits a lender as to what it can and cannot pursue for collateral.
  5. Fundamental Analysis

    4 Leverage Ratios Used In Evaluating Energy Firms

    These four leverage ratios can help investors understand how oil and gas firms are managing their debt.
  6. Credit & Loans

    What are the Five C's of Credit?

    The five C’s of credit are what banks and other lenders evaluate about a potential borrower when making a lending decision. The five C’s are Character, Capacity, Capital, Collateral and Conditions. ...
  7. Options & Futures

    Conquering The Terms Of Your Mortgage

    Buyers with big down payments should get the best mortgage terms. Unfortunately, the equation isn't that simple.
  8. Entrepreneurship

    7 Unconventional Ways Businesses Can Borrow Money

    Find out how your business can get the money it needs - even when the bank says "no".
  9. Home & Auto

    Homebuyers' Walkthrough: Obtaining A Mortgage

    A mortgage is a pledge of real property as security for the payment of money, and today's homebuyers have a variety of options in terms of lenders and loan types. Obtaining a mortgage can be ...
  10. Active Trading Fundamentals

    Analyzing Wal-Mart's Debt Ratios in 2016 (WMT)

    Analyze Wal-Mart's debt-to-equity ratio, interest coverage ratio and cash flow-to-debt ratio to evaluate the company's financial health and debt management.
RELATED FAQS
  1. What is the debt ratio for an FHA loan?

    Borrowing through the Federal Housing Administration requires individuals to provide proof of income as well as information ... Read Answer >>
  2. How do I use the debt ratio to decide when to invest in a company?

    Understand the calculation and interpretation of the debt ratio and how this metric is used by investors to analyze a company's ... Read Answer >>
  3. Which financial ratio best reflects capital structure?

    Learn about the debt-to-equity ratio and why this metric is widely considered the most useful reflection of a company's capital ... Read Answer >>
  4. What’s the difference between a mortgage lender and a mortgage servicer?

    Buying a home is an exciting and confusing process. Once the loan is secured, it's important to know who gets the payment: ... Read Answer >>
  5. What are the advantages and disadvantages of using the total debt to total assets ...

    Learn how the total debt to total assets ratio is beneficial to investors and lenders in assessing the solvency of a company ... Read Answer >>
  6. Does a high debt to capital ratio make a company a bad investment?

    Understand the debt to capital ratio and why a high debt to capital ratio doesn't necessarily mean that a stock is a bad ... Read Answer >>
Hot Definitions
  1. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  2. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  3. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  4. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  5. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  6. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
Trading Center