Debt-service coverage ratio divides net operating income by the annual debt service required during the same period.
A ratio above 1.00 means the modeled NOI exceeds modeled debt service; below 1.00 means it does not. That interpretation is mathematical, not an approval threshold. Lenders can normalize NOI, include reserves, define debt service, stress rates, and require ratios differently by property and program.
How debt-service coverage ratio (dscr) works
Use supportable annual NOI and the full annual principal-and-interest obligation required by the analysis. Keep periods aligned. Stress vacancy, expenses, and variable-rate debt rather than presenting one base-case ratio as certain.
Formula: DSCR = annual NOI ÷ annual debt service
Worked example
Annual NOI of $140,000 divided by $100,000 annual debt service produces a 1.40 DSCR. If stressed NOI falls to $112,000, DSCR falls to 1.12 without any change in the loan payment.
Common mistakes and review checks
Treat the result or document as one input to a decision. Verify the current source document, definitions, dates, and transaction facts before relying on it.
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Calling 1.25 or any other ratio a universal approval requirement.
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Mixing monthly NOI with annual debt service.
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Using owner cash flow after debt service in the numerator.
Related tools & guides
Editorial ownership
Written and maintained by the Aptoria editorial team
Content updated August 3, 2026. Editorial method reviewed July 28, 2026. Aptoria reviews scope, source fit, examples, limitations, links, and publication gates. This record does not claim attorney, CPA, lender, appraiser, or other independent professional sign-off.
Primary and authoritative sources
OCC Comptroller's Handbook: Commercial Real Estate Lending 2.0 ↗
NOI, DSCR, debt yield, capitalization-rate analysis, and warnings about normalizing property income and expenses.
Related terms
Investing metrics
Net operating income (NOI)
Net operating income is effective property income minus normalized property operating expenses, before debt service and owner-level income taxes.
Investing metrics
Cash flow
The cash left over each period after all income is collected and all expenses — including the mortgage — are paid.
Investing metrics
Cash-on-cash return
The annual pre-tax cash flow a property produces divided by the actual cash you invested in it.
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