What is the debt service coverage ratio DSCR and how is it calculated?
One of the most frequent reasons a commercial loan is denied is because the property does not meet the commercial lender’s minimum DSCR requirements. Understanding how a commercial mortgage lender calculates the DSCR can be helpful to know when applying for a commercial real estate loan, conduit loan or an apartment loan. DSCR = NOI/Total Debt Service A common misconception made by borrowers when applying for a commercial mortgage loan is that the bank or commercial lender only uses the expenses from the property when calculating the NOI. Commercial Mortgage lenders use the actual expenses plus additional holdbacks, such as, off-site management, vacancy, replacement reserves, repairs and maintenance, etc. Commercial lenders add these numbers to the expenses for several reasons, including, should the borrower default – management fee holdback, should the property lose a tenant(s) -vacancy factor, increase in costs, buffer for unexpected repairs, etc What are the minimum or maximum loan
