TDS takes everything in GDS — principal, interest, property tax and heat — and adds every other recurring debt obligation the borrower carries, then divides the total by the same gross annual income. If GDS asks whether the house fits, TDS asks whether the borrower's whole financial life fits, housing included.
Because TDS always includes the GDS components, TDS can never be lower than GDS for the same file — the two ratios only diverge upward from the same PITH base as more non-housing debt gets added. A file with TDS equal to GDS simply has no other debt on the bureau at all, which is unusual but not impossible for a young applicant with a thin credit file.
Credit cards and unsecured lines of credit are counted using a required-minimum-payment convention rather than whatever the client happens to pay each month. Underwriters do not reward a borrower for aggressively paying down a credit card balance by using that larger voluntary payment in the ratio — they use the minimum the lender is contractually owed, because that is the obligation that persists if the borrower's circumstances change.
For lines of credit without a stated minimum payment, lenders typically apply a percentage of the outstanding balance as the monthly obligation. This means a large, mostly-unused line of credit with a small current balance is treated far more gently than the same line drawn close to its limit — one more reason the utilization discussion in Module 05 of Course 06, Reading the Credit Bureau, matters to a ratio calculation, not just to a credit score.
Car loans, personal loans and other fixed-term installment debt go into TDS at their actual contractual payment for as long as the debt is active — there is no discount for a loan that is nearly paid off, though a lender may exercise judgement on a loan with only a handful of payments remaining. Student loans are counted the same way: the actual required payment, whether that is a fixed installment or, for federal student loans, a payment calculated under the borrower's repayment plan.
Court-ordered or agreement-based child and spousal support is included as a debt obligation at its full monthly amount — it is a legal obligation with the same priority as any other debt, and lenders will ask for the separation agreement or court order to confirm the figure rather than take a verbal number.
A debt the borrower has co-signed or guaranteed for someone else — a child's car loan, a sibling's line of credit — generally has to be included in the borrower's own TDS, on the reasoning that the borrower is legally on the hook for it even if someone else is making the payments. Some lenders will exclude it if the borrower can demonstrate, typically with twelve months of statements, that the other party has made every payment without the co-signer's involvement, but that is a documented exception, not the default treatment.
This surprises a lot of clients who think of a co-sign as a formality rather than a real debt. It is worth raising early in the intake conversation — see Course 21, Client Intake & Discovery — rather than discovering it for the first time on the bureau pull.
TDS is a debt-service ratio, not a household-budget ratio, and the distinction matters. Property insurance, life or disability insurance, daycare costs, cell phone bills, car insurance, groceries and every other ordinary living expense are excluded, no matter how large they are relative to the borrower's income. A borrower spending heavily on daycare will feel that pressure in real life, but it will not appear anywhere in the TDS calculation.
This is a frequent point of confusion for first-time buyers who feel that lenders are approving a mortgage that does not account for their actual monthly obligations. It is worth explaining to clients plainly: the ratio measures debt, not lifestyle, and the two can genuinely diverge.
A borrower is co-signer on their adult child's car loan and is not making the payments personally. How is this treated in the borrower's TDS?
Co-signed debt is a real legal obligation for the co-signer, so the default treatment includes it in full — the borrower is on the hook for it even if they never intended to make a payment. The tempting wrong answer is automatic exclusion because someone else is paying, but lenders need documented proof of that pattern, typically twelve months of statements, before they will exercise the exception. Assuming exclusion without that evidence is a good way to have a file come back with a lower approved amount than expected.
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