GDS is an affordability ratio that tells a lender whether a borrower has too much debt, or if the borrower should be able to repay a loan if it is granted. This is just one of several different ratios used by lenders. Another common one is the debt-to-income ratio. This ratio uses a total of all debt a borrower has, and lenders prefer the answer to be 40 percent or less.
GDS is calculated easily, requiring only three pieces of information. It is calculated by dividing the person's annual mortgage payments plus property taxes by the person's gross family income.
After performing this calculation, the answer reveals to lenders information regarding a borrower's ability for loan repayment. A ratio of 30 to 32 percent or less is considered good and acceptable. This means that a person's housing costs should not exceed 32 percent of his gross income.
