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DSCR: Debt Service Coverage Ratio in Relation to HUD 232 Loans

HUD 232 Loans and Debt Service Coverage Ratio 

In addition to LTV, or loan-to-value ratio, DSCR, or debt service coverage ratio, is one of the most important financial metrics that a lender examines when deciding whether to approve a HUD 232 or HUD 232/223(f) loan. DSCR compares the annual cash flow from a property to its annual debt service obligation, which includes principal, interest, and other related costs, including MIP

How is DSCR Calculated? 

DSCR can be calculated using the formula below: 

DSCR = Net Operating Income (NOI) / Annual Debt Service

For example, if a property has an annual NOI of $3 million, and an annual debt service of $2.2 million, we can determine DSCR by dividing the NOI by the annual debt service, like so: 

$3,000,000/$2,200,000 = 1.36x DSCR

What is the Minimum DSCR for HUD 232 Loans? 

The minimum DSCR for HUD 232 loans is 1.45x. However, borrowers using a HUD 232 loan to build a new property will have some time to reach the required DSCR. 

To learn more about FHA 232 loans, fill out the form below to speak to a HUD/FHA loan expert.