Loading...

# Debt Service Coverage Ratio (DSCR)

\$
%
\$
x

## What is Debt Service Coverage Ratio (DSCR)?

Debt Service Coverage Ratio (DSCR), sometimes called the debt service ratio, is the ratio of net operating income (NOI) to yearly debt service. It is a measure of the amount of net income from a property that is available to make payments on its debt.

A DSCR of 1.25 means that for each \$1 in mortgage expense, the property has \$1.25 of net operating income (NOI).

## Debt Service Coverage Ratio (DSCR) Formula

The formula for Debt Service Coverage Ratio (DSCR) is:

## Calculating Debt Service Coverage Ratio (DSCR)

To calculate a DSCR, you will need a property's net operating income (NOI) and its mortgage payment. You divide the NOI by its annual debt service (12 months of mortgage payments) to get the DSCR, usually represented as a number and two decimal spaces (i.e. 1.37). For more on net operating income, see Calculating Multifamily NOI.

## Why is Debt Service Coverage Ratio (DSCR) important?

Debt service coverage ratio is important because it is a primary metric used by lenders to determine maximum loan amount, loan terms and loan rates. For multifamily loans, the minimum DSCR will generally range from 1.20-1.40 depending on the location of the property.