What does the Gross Debt Service Ratio measure?

What does the Gross Debt Service Ratio measure?

• A. The percentage of income that goes towards all debts
• B. The percentage of income that goes towards housing costs
• C. The total income from all employment
• D. The value of property owned by the borrower

Answer: (B)

The Gross Debt Service (GDS) Ratio specifically measures the percentage of a borrower's gross income that is allocated towards housing costs. This includes expenses such as mortgage payments, property taxes, heating costs, and any fees related to the property. Lenders utilize the GDS Ratio to assess whether a borrower's income is sufficient to manage their housing expenses comfortably. A lower GDS Ratio indicates that a borrower has a manageable level of housing debt in relation to their overall income, which is a crucial factor in determining their ability to make mortgage payments without financial strain. This aspect of the GDS Ratio is vital in mortgage lending as it directly guides lenders in making informed decisions on loan approvals.

The Gross Debt Service (GDS) Ratio specifically measures the percentage of a borrower's gross income that is allocated towards housing costs. This includes expenses such as mortgage payments, property taxes, heating costs, and any fees related to the property. Lenders utilize the GDS Ratio to assess whether a borrower's income is sufficient to manage their housing expenses comfortably. A lower GDS Ratio indicates that a borrower has a manageable level of housing debt in relation to their overall income, which is a crucial factor in determining their ability to make mortgage payments without financial strain. This aspect of the GDS Ratio is vital in mortgage lending as it directly guides lenders in making informed decisions on loan approvals.