The debt coverage ratio is used to indicate how much the NOI can decline before it will not cover the debt service on the property. While DCRs can vary based on competition within a particular market, lenders usually seek a minimum DCR of:

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Lenders usually seek a minimum DCR of 1.20 to ensure that the property generates enough income to cover the debt service even if there is some decline in NOI. A DCR of less than 1.0 would indicate that the property is not generating enough income to cover its debt service, which is not desirable for lenders. A DCR between 1.0 and 1.20 may be acceptable in certain markets, but a DCR of 1.20 or higher is generally preferred.

The Debt Coverage Ratio Is Used to Indicate How Much