Definition: Minimum debt service coverage ratio. The minimum ratio of effective annual net operating income to annual principal and/or interest payments. Also called “debt service coverage (DSC)” and typically written as 1 .25x, where x represents the number of times the annual debt service must be exceeded to achieve the target DSCR; a constraint to maximum loan amount. Both Lenders and Investors calculate this ratio to assist them in determining the likelihood of the property generating enough income to pay the mortgage payments. From the lenders viewpoint, the higher the ratio, the better.
