Finance
What is 'debt service coverage ratio' (DSCR) in Rhode Island commercial lending?
AThe ratio of the borrower's debt to their income
BThe ratio of a property's NOI to its annual debt service; lenders require a DSCR above 1.0 (often 1.25 or higher) to approve loans✓ Correct
CThe ratio of construction debt to appraised value
DThe percentage of income used to service all personal debts
Explanation
DSCR = NOI / Annual Debt Service. It measures whether a property generates enough income to cover its mortgage payments.
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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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