Finance
A Washington lender uses the concept of 'debt coverage ratio' (DCR) when underwriting commercial loans. A DCR of 1.25 means:
AThe property generates 25% more NOI than the annual debt service, indicating positive cash flow✓ Correct
BThe loan amount is 125% of the property value
CThe borrower's income is 1.25 times their total debt obligations
DThe property generates 25% less income than needed to cover the debt
Explanation
Debt Coverage Ratio (DCR) = NOI ÷ Annual Debt Service. A DCR of 1.25 means the property's NOI is 1.25 times the annual debt service — the property generates 25% more income than needed to cover the mortgage payment, providing a cushion for vacancies or expense increases.
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