Debt Coverage Ratio

Mathematical relationship of Net Operating Income divided by Annual Debt Service; often used as underwriting criterion for Income Property mortgage loans.

The relationship between Net Operating Income (NOI) and Annual Debt Service (ADS). Often used as an Underwriting criterion for Income Property mortgage loans.
Example: Annual debt service for a mortgage loan on a certain office building is $10,000. The property generates $25,000 in annual gross rent, and requires $7,000 for expenses of operation, leaving $18,000 net operating income. The debt coverage ratio is 1.80, calculated by the following formula:

NOI = $18,000 = 1.8

ADS $10,000