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What is a DCR or Debt
Coverage Ratio?
"DCR" stands for "Debt Coverage
Ratio" and it is critical to a successful multi-family or
commercial loan. The DCR is the ratio of the net income generated
by the property over the total payments of debt related to the
property. The DCR is a measure of the cash flow characteristics of
the property, not the borrower, and with a few exceptions most
programs require DCR to be in excess of 1.15. DCR is so critical
because it acts as a limit on the loan amount even, in many cases,
restricting the total loan dollars more than the loan-to-value
ratio. So, if the DCR requirement for a loan is 1.15, the net
operating income must be at least 115% of the total loan payments.
As a result, the higher the DCR, the lower the loan amount!
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