Finance
The 'debt service coverage ratio' (DSCR) is used in commercial lending to ensure that:
AThe borrower's credit score exceeds a minimum threshold
BThe property's NOI is sufficient to cover the annual mortgage payments✓ Correct
CThe property has adequate insurance coverage
DThe borrower has personal assets exceeding the loan amount
Explanation
The DSCR = NOI ÷ Annual Debt Service (total mortgage payments). Lenders typically require a DSCR of at least 1.
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Key Terms to Know
Net Operating Income (NOI)
The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Math Concepts
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