1. What is DSCR ? Why is pre-tax amount used in the calculation?

Question

Accepted Answer

DSCR stands for Debt Service Coverage Ratio. Pre-tax amount is used in the calculation to ensure that the borrower has enough income to cover their debt obligations.

DSCR is a financial ratio used to determine if a borrower has enough income to cover their debt obligations
It is calculated by dividing the borrower's pre-tax income by their total debt service
A DSCR of 1 or higher indicates that the borrower has enough income to cover their debt obligations
Pre-tax amount is used in the calculation to ensure that the borrower has enough income to cover their debt obligations after taxes
Lenders typically require a minimum DSCR of 1.25 for commercial real estate loans

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1. What is DSCR ? Why is pre-tax amount used in the calculation?

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