debt coverage ratio | Real Estate Dictionary

The number of times net operating income must cover the annual mortgage payments (principal and interest). For example, if the lender requires the borrower to earn $1,100 in net income to allow him $1,000 in annual mortgage payments, the ratio is 1.1:1. The lender usually states the ratio as a number exceeding one (i.e., 1.1) and the maximum allowable loan payment can then be calculated by dividing N.O.I. by the number supplied (i.e., $1,100 ÷ 1.1 = $1,000.) See also Ratio.