DSCR (Debt Service Coverage Ratio) and the HUD 223(f) Loan Program
DSCR is a metric used by lenders to determine loans on income-generating properties. It is the required cash flow for paying current debts (interest, principal, lease payments, etc.), plus a certain margin of safety. DSCR can be calculated by taking a property’s net operating income (NOI) and dividing it by the property’s annual debt service. For HUD 223(f) loans, the minimum DSCR is 1.18x for market-rate properties, 1.15x for affordable properties, and 1.11x for rental assistance demonstration (RAD)/Section 8 properties.