debt service ratio


A ratio that lenders use to determine your maximum mortgage loan amount.

The debt service ratio is calculated by dividing (a) your annual mortgage loan payments, plus property taxes, plus half of your heating costs, by (b) your gross annual income (before taxes).

Lenders usually do not allow the debt service ratio to exceed 32%.

For example, if you have an annual gross income of $30,000, the lender would allow a maximum of $30,000×32% = $9,600 annually for the combination of mortgage loan payments, property taxes, and half your heating costs.

(By subtracting the property taxes and heating costs from the $9,600, you could determine the annual amount available specifically for mortgage loan payments.)

Contrast with total debt service ratio, which (confusingly) is another ratio used to calculate your maximum mortgage loan amount.

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