Gross Debt Service Ratio
This ratio measures your housing costs, including mortgage payment, property taxes, heating, and half of any condo fees, against your gross income. Lenders typically want this ratio to stay under a set percentage of your income.
Total Debt Service Ratio
This ratio adds in all your other debt payments, such as car loans, credit cards, and student loans, on top of your housing costs, again measured against your gross income. This gives a fuller picture of your overall debt load.
Why Both Ratios Matter
Even if your housing costs alone look affordable, high other debts can push your total debt service ratio too high, limiting how much you can borrow. Paying down other debts before applying can improve your borrowing power.
- Housing costs alone are not the full picture
- Other debts count toward your total ratio
- Paying down debt can increase what you qualify for
How Condo Fees Factor In
For condo buyers, typically half of your monthly condo fee is included in the gross debt service calculation, which can meaningfully affect your maximum approved amount compared to a freehold property.
Improving Your Ratios Before Applying
Paying off a car loan, reducing credit card balances, or increasing your income are all ways to improve your debt service ratios and potentially qualify for a larger mortgage.
Frequently asked questions
- What is a typical maximum for gross debt service ratio?
- Lenders commonly look for this to stay around 39 percent or lower, though it can vary by lender.
- Do student loans count toward my debt service ratio?
- Yes, ongoing student loan payments are included in your total debt service calculation.
- Can paying off a car loan help me qualify for more?
- Yes, reducing monthly debt obligations can improve your ratios and increase your borrowing capacity.