Qualifying Ratios
Definition
- As calculated by lenders, the percentage of income that is spent on housing debt and combined household debt. The first qualifying ratio, called the gross debt service or GDS is up to and including a maximum of 32% of the combined gross family income. The second qualifying ratio is the Total debt service or TDS is up to and including 40% of gross income.
Synonyms
guidelines, passing grade, acceptable limits
Related Terms and Acronyms
- Credit Rating (CR) — Acronym, Very Important,
- A judgement of a person's ability to repay debts. The rating is often based on a person's current and projected income and past debt payment history. Also called a credit score.
➥ A metric to measure the credit worthiness of a debtor. - Credit Report (CR) — Acronym, Very Important,
- A report on a loan applicant's willingness and ability to make payments in a timely manner in the past. This report is provided to the bank by an outside agency.
➥ A report that outlines the credit worthiness of an individual or entity. - Gross Debt Service (GDS) — Acronym, Very Important,
- The total monthly mortgage (or rent) payments, property taxes, utilities and maintenance fees as a percentage of gross monthly income.
➥ Used by mortgage lender underwriters to determine one's ability to qualify for a mortgage loan. - Gross Income — Definition,
- Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.
- Lender — Definition,
- The bank or mortgage company offering the loan.
- Mortgage (mtg) — Abbreviation, Important,
- A mortgage is a contract stipulating a specific real property, typically a residence or building, as collateral for a loan. The mortgage incurs a rate of interest that varies according to term and other features.
- Pre-approval — Definition,
- A process that mortgage lenders use to determine how much money they would lend you based on a thorough review of your financial situation. Lenders issue a pre-approval letter which strengthens your position when bidding on a home, as it shows sellers that you will be able to raise funds needed to purchase.
- Pre-qualification — Definition,
- An informal process in which a lender will offer an opinion on how much money you may be able to borrow. This opinion is based entirely on the financial information you provide and is neither binding nor necessarily accurate because lenders have not yet verified your financial information.
- Ratio — Definition,
- Comparison of two figures used to evaluate business performance, such as debt/equity ratio and return on investment.
- Total Debt Service (TDS) — Acronym, Important,
- The ratio of a borrower's total monthly debt payments to his or her monthly gross income. Lenders use this ratio to determine how much of a loan a borrower is qualified for.
