Debt Service Coverage Ratio (DSCR)
DSCR is a property's net operating income divided by its annual debt service — a measure of how much cushion the income has over the mortgage payment.
What it means
DSCR = NOI ÷ Annual Debt Service. A DSCR of 1.00 means NOI exactly covers debt service; 1.25 means NOI is 25% above the mortgage payment.
Lenders use DSCR as an underwriting constraint. Typical minimums: 1.20–1.30 for stabilized multifamily (agency debt), 1.25–1.40 for commercial, 1.50+ for higher-risk properties or owner-user SBA loans.
Lower DSCR = tighter cushion = higher default risk. When rates rise and NOI stays flat, DSCR tightens. This is why interest-only bridge loans that underwrote to 1.30x DSCR sometimes break covenants when rates move.
Example
NOI is $250,000 and annual debt service is $200,000. DSCR = 250 / 200 = 1.25.
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