What is debt service coverage ratio (DSCR)?
DSCR is net operating income divided by annual debt service: a measure of how comfortably a property's income covers its loan payments.
DSCR = NOI ÷ annual debt service. A DSCR of 1.25x means the property generates 1.25 dollars of NOI for every dollar of loan payment, leaving a 25% cushion. A DSCR of 1.0x means income exactly covers the payment, with nothing to spare.
Lenders set minimum DSCR requirements, often around 1.20x to 1.25x, to size loans. A lower DSCR threshold supports more debt; a higher one limits it, which is why DSCR shapes how much leverage a deal can carry.
Why it matters
DSCR is a financing gate. If a deal pencils below the lender's minimum, the loan shrinks or stalls, changing the equity required and the returns.
Where it shows up in your OM
Where a deal's financing is presented, omgen derives DSCR from the NOI and debt terms you enter and labels it by source, so you can verify it before the OM goes out.
Frequently asked questions
- How is DSCR calculated?
- Divide annual net operating income by annual debt service (principal and interest). For example, $1,250,000 NOI against $1,000,000 of debt service is a 1.25x DSCR.
- What DSCR do lenders require?
- It depends on the lender, asset, and market, but commercial lenders commonly look for a minimum around 1.20x to 1.25x. Riskier assets or markets may require a higher cushion.
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