debt service coverage ratio

Definition

A metric comparing property income to debt payments, calculated by dividing net operating income by annual debt service. Commercial lenders worship this number, typically requiring 1.25 or higher to prove you can actually afford the loan.

Example Usage

With a DSCR of 1.4, the apartment building generated 40% more income than needed to cover the mortgage, satisfying the lender's requirements.

Origin

Commercial lending terminology, standardized in institutional real estate finance in the 1970s

Fun Fact

Some lenders now offer 'DSCR loans' for real estate investors that qualify based solely on the property's income rather than the borrower's personal income.

Source: Commercial mortgage underwriting standards

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