Definition
The debt service coverage ratio (DSCR) compares an association’s available income to its loan payment obligations, showing how much cushion exists to cover the debt.
Why It Matters Financially
Lenders use DSCR to decide whether to approve a loan and at what terms. A higher ratio signals lower risk and can unlock better rates, making it a key metric in qualifying for financing.
Example Use Case
A lender calculates a debt service coverage ratio well above its minimum and approves the association’s loan.
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Related Terms
Cash Flow, Debt Service, Underwriting, Creditworthiness, Annual Budget