Humber/Ontario Real Estate Course 3 Exam Practice

How do you calculate the GDS ratio if a buyer's income is $85,000 and PIT payments total $23,750?

1. 0.30%

2. 28%

3. 3.57%

4. 32%

5. 33%

6. 5%

The correct answer is: 28%

To calculate the Gross Debt Service (GDS) ratio, you can use the following formula: \[ \text{GDS ratio} = \left( \frac{\text{Total PIT}}{\text{Gross Income}} \right) \times 100 \] In this case, the buyer's income is $85,000, and the total Principal, Interest, and Taxes (PIT) payments amount to $23,750. Plugging these values into the formula gives: \[ \text{GDS ratio} = \left( \frac{23,750}{85,000} \right) \times 100 \] Calculating this: \[ \text{GDS ratio} = \left( 0.2794 \right) \times 100 = 27.94\% \] When rounding to the nearest whole number, this GDS ratio translates to approximately 28%. This calculation reflects the proportion of a buyer's gross income that is allocated to housing costs, which lenders typically want to keep below a certain percentage to ensure borrowers can afford their mortgage payments. Recognizing that the GDS ratio is a critical factor in mortgage approval processes underscores its importance in the real estate field. It's worth noting that