Finance
What is 'debt service coverage ratio' (DSCR) and how do Hawaii commercial lenders use it?
AA. The ratio of the borrower's total monthly debt to monthly income
BB. The ratio of a property's net operating income to its annual mortgage payments; lenders typically require 1.20 or higher✓ Correct
CC. The ratio of total debt to property value
DD. The amount of cash reserves required by lenders for commercial loans
Explanation
DSCR = NOI / Annual Debt Service. A DSCR of 1.20 means the property generates $1.20 for every $1.00 of debt service, providing a cushion against income fluctuations. Commercial lenders in Hawaii typically require a minimum DSCR of 1.20–1.25 to ensure the property can service its debt even if income decreases.
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