Gross Debt Service Ratio - GDS

AAA

DEFINITION of 'Gross Debt Service Ratio - GDS'

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)

INVESTOPEDIA EXPLAINS '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. Debt-To-Income Ratio - DTI

    A personal finance measure that compares an individual's debt ...
  2. Credit Rating

    An assessment of the credit worthiness of a borrower in general ...
  3. Covenant-Lite Loans

    A type of loan whereby financing is given with limited restrictions ...
  4. Credit Risk

    The risk of loss of principal or loss of a financial reward stemming ...
  5. House Poor

    A situation that describes a person who spends a large proportion ...
  6. Debt

    An amount of money borrowed by one party from another. Many corporations/individuals ...
Related Articles
  1. Budgeting

    Mortgages: How Much Can You Afford?

    Answering this means number-crunching as well as factoring in other considerations and expenses.
  2. Home & Auto

    The Benefits Of Mortgage Repayment

    Buying a home may be the biggest debt you'll ever incur. Learn why you should retire it sooner, rather than later.
  3. Credit & Loans

    Digging Out Of Personal Debt

    Find out why good intentions can put consumers in an even bigger hole than before.
  4. Home & Auto

    How should you choose the amortization period for your mortgage?

    Read about key considerations that homeowners should take into account before choosing the amortization period for their mortgages.
  5. Credit & Loans

    What is the key to finding your ideal mortgage?

    Learn what steps you need to take in order to locate the perfect mortgage for your budget, lifestyle and long-term financial goals.
  6. Home & Auto

    Where are home values falling the fastest in the US, and why?

    Learn about the metropolitan areas in the United States experiencing the largest drops in median single family homes values in 2014 and the reasons behind it.
  7. FHA mortgages offer flexibility and low down payments, though they're often pricier than traditional loans backed by private mortgage insurance.
    Credit & Loans

    Before You Choose An FHA Mortgage: 7 Key Points

    FHA mortgages offer flexibility and low down payments, though they're often pricier than traditional loans backed by private mortgage insurance.
  8. Home & Auto

    How did the ABX index behave during the 2008 subprime mortgage crisis?

    Read about the disastrous performance of the various ABX indexes in the subprime mortgage crisis of 2008 during the middle of the Great Recession.
  9. FHA loans are often a good alternative for those who have trouble obtaining a conventional mortgage, although you do have to pay an insurance premium.
    Home & Auto

    Mortgage For A Manufactured Home? Try The FHA

    FHA loans are often a good alternative for those who have trouble obtaining a conventional mortgage, although you do have to pay an insurance premium.
  10. Mutual Funds & ETFs

    How do traders use the ABX index?

    Learn about some of the ways traders, banks and even hedge funds have traditionally used the ABX indices to make bets on mortgage-backed securities.

You May Also Like

Hot Definitions
  1. Christmas Club

    A short-term savings account that usually pays out the full account balance to its account holders once each year, right ...
  2. Boston Snow Indicator

    A market theory that states that a white Christmas in Boston will result in rising stock prices for the following year. For ...
  3. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  4. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  5. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  6. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
Trading Center