debt service ratio

Debt-Service Coverage Ratio

1. In investment real estate, the ratio of annual net operating income on a piece of investment property to its annual debt service. Banks use the DSCR to help determine whether to make or refinance loans for investment property. A DSCR equal to or greater than 1 indicates that the debtor is able to service the debt on the income from the investment property. In personal finance, banks usually require a DSCR of at least 1 to make such a loan, while they generally expect a ratio of 1.2 for commercial projects.

2. In government finance, the ratio of annual export earnings to its annual debt service on external debt.

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debt service ratio

The ratio of debt payments to disposable income; used in evaluating one's eligibility for a mortgage loan. National averages, calculated quarterly for every year since 1980, are provided at the Web site of the Federal Reserve Board, www.federalreserve.gov/releases/ housedebt/default.htm.