DSCR (Debt Service Coverage Ratio)
DSCR measures whether a property's income covers its loan payments: net operating income divided by annual debt service. A DSCR of 1.25x means income exceeds payments by 25%. Commercial lenders typically require at least 1.25x on stabilized properties and 1.10–1.20x on bridge or acquisition loans.
DSCR = Net Operating Income ÷ Annual Debt ServiceDSCR is usually the constraint that actually sizes a commercial loan. When the ratio falls below the lender's minimum, the loan amount is reduced until it clears — regardless of how much equity the property has.
Because debt service depends on rate and amortization, the same property supports a smaller loan when rates rise. Interest-only periods temporarily raise DSCR since payments exclude principal.
A property with $560,000 NOI and a loan requiring $381,000 in annual payments has a DSCR of 1.47x — comfortably above a 1.25x minimum.