Debt Service Coverage RatioDSCR
Quick answer
Debt service coverage ratio (DSCR) is net operating income divided by annual debt service, showing how many times income covers the loan payment.
DSCR tells a lender whether a property produces enough income to pay its debt. A 1.25x DSCR means net operating income is 125% of annual debt service. Most permanent commercial lenders require a minimum DSCR of 1.20x to 1.25x at closing; agency multifamily lenders typically require 1.25x, while transitional and bridge lenders may underwrite to a stabilized DSCR instead of an in-place one.
Formula
DSCR = Net Operating Income ÷ Annual Debt Service
Example: $1,250,000 NOI ÷ $1,000,000 debt service = 1.25x DSCR
Related product: Permanent Debt
Related terms
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