Confidential - Internal Distribution
Debt Service Coverage Ratio (DSCR) Examples
December 20, 2011
Actual Debt Service Coverage Ratio
Actual DSCR is the ratio of Underwritten Net Operating Income (UW NOI) to the annualized debt service.
UW NOI = Underwritten Effective Gross Income less Underwritten Total Expenses.
Annualized Debt Service = For full and partial interest-only, 30/360, and Actual/360 loans, use the Initial
Interest Rate multiplied by Actual Unpaid Principal Balance at Acquisition. For amortizing 30/360 and
Actual/360 loans, use the monthly payment as stated in the Note multiplied by 12.
Product Variations
Partial and Full Interest-Only Loans: The calculation will not include an amortization factor.
ARM Loans: The calculation will be based on the Initial Interest Rate.
Cooperatives: UW NOI = Actual Cooperative NOI Effective Gross Income less Underwritten Total
Expenses.
Supplemental Mortgages & Loans with Subordinate Debt (Combined): The ratio of UW NOI to
the annualized combined monthly payments of all existing loans. Combined monthly payments =
the combined current monthly payments for all supplemental, subordinate debt, and first liens (does
not include soft debt).
Debt Service Coverage Ratio (IO/ARM)
DSCR (IO/ARM) is the ratio of UW NOI to the debt service calculated as described below.
UW NOI = Underwritten Effective Gross Income less Underwritten Total Expenses.
Partial Interest-Only Loans: DSCR = UW NOI / annualized partial interest-only amortizing payment.
ARM Loans: DSCR = UW NOI / annualized monthly payment calculated using, the maximum lifetime interest
rate, if applicable, for ARMS with an embedded cap, or the variable underwriting rate for other ARMS (e.g.
Structured ARM) with an amortization factor.
Product Variations
Full Interest-Only Loans: DSCR (IO/ARM) will be the same as the Actual DSCR.
Amortizing loans with no Interest-Only Period: DSCR (IO/ARM) will be the same as the Actual
DSCR.
Cooperatives: UW NOI = Rental Equivalent NOI Effective Gross Income less Underwritten Total
Expenses.
Supplemental Mortgages & Loans with Subordinate Debt (Combined): The ratio of UW NOI to
the annualized combined monthly payments of all existing loans. Combined monthly payments =
the combined current monthly payments for all supplemental, subordinate debt, and first liens (does
not include soft debt).