Which statement accurately describes the Total Debt Service Ratio (TDS)?

The Total Debt Service Ratio (TDS) is a critical metric used by lenders to assess a borrower's ability to manage monthly debt obligations relative to their income. The correct answer highlights that the TDS does indeed include both housing costs and contractual debts. Specifically, the TDS calculation combines the total monthly housing expenses—such as mortgage payments, property taxes, and heating costs—with all other monthly debt obligations, like car loans and credit card payments. This comprehensive approach ensures that lenders can evaluate a borrower's overall financial responsibilities and determine if they can comfortably manage their debt levels in relation to their income.

In this context, understanding the components of the TDS is essential for borrowers and lenders alike. The ideal target for TDS is often below 40%, but different lenders may have varying guidelines based on individual circumstances. So, while the option about having a TDS below 35% reflects a common guideline, TDS encompasses a broader scope beyond mere credit scores or the absence of contractual debt. This makes the original statement regarding its inclusivity of housing costs and debts the most accurate.