Debt service coverage ratio
By Jude Wallis
Debt service coverage ratio, or DSCR, is net operating income divided by the principal and interest payments due over the same period. A result above 1 means income covers the payments.
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A DSCR of 1 is not comfort, it is the exact edge: every dollar of operating income is spoken for by the loan. Lenders on income property usually want a cushion above that edge, and the size of the cushion is how a lender prices the risk that rents fall or a roof fails.
The ratio only works if debt service is left out of the numerator. Net operating income stops before the mortgage on purpose, and subtracting the payment twice produces a ratio that looks alarming for no reason.
Compare the periods too: an annual income figure over a monthly payment overstates coverage twelvefold. The DSCR calculator is the division and the NOI calculator builds the numerator. Interest coverage is the corporate cousin that stops at interest.