Total Debt Service Ratio: What Is It and How Does It Impact Your Mortgage Application?
When you're applying for a mortgage, the total debt service ratio (TDSR) is one of the most important numbers to know. This figure measures your monthly debts against your monthly income, and it can have a big impact on whether you're approved for a loan. In this article, we'll explain what the TDSR is and how it affects your application.
What is the total debt service ratio?
The total debt service ratio is a measure of your monthly debts against your monthly income. To calculate your TDSR, lenders will look at all your monthly debts, including things like credit card payments, car loans, and other debts. They'll then compare that number to your gross monthly income. For example, if your monthly debts total $1,500 and your monthly income is $5,000, your TDSR would be 30%.
How does the total debt service ratio impact my mortgage application?
Your TDSR is an important number because it shows lenders how much of your income is going towards debts each month. A high TDSR means that you're using a large portion of your income to pay off debts, which can make it difficult to afford a mortgage payment. On the other hand, a low TDSR indicates that you have plenty of income left over after paying your debts, which makes you a more attractive borrower.
In general, most lenders are looking for a TDSR of 40% or less. That means that your monthly debts should be no more than 40% of your monthly income. If your TDSR is higher than that, you may still be able to get a loan, but you'll likely have to make a larger down payment.
What can I do if my TDSR is too high?
If your TDSR is above 40%, there are a few things you can do to improve your chances of getting a loan. One option is to try to boost your income by taking on a part-time job or working overtime. You can also try to pay off some of your debts, which will lower your monthly payments and make it easier to afford a mortgage.
Another option is to wait until your financial situation improves. If you're able to save up money and pay down some of your debts, your TDSR will improve over time. You can also try to get a loan from a lender who has more flexible guidelines.
Can I get a mortgage if my TDSR is above 40%?
It's possible to get a mortgage if your TDSR is above 40%, but it may be more difficult. You may have to make a larger down payment, or you may need to find a lender who has more flexible guidelines. If your TDSR is significantly above 40%, it's a good idea to take some time to improve your financial situation before you apply for a loan.
The bottom line
The total debt service ratio is an important number to know when you're applying for a mortgage. This figure measures your monthly debts against your monthly income, and it can have a big impact on whether or not you're approved for a loan. If your TDSR is too high, you may still be able to get a loan, but you'll likely have to make a larger down payment.