What is generally included in the calculation of debt service coverage ratio?

The debt service coverage ratio (DSCR) is a key financial metric used to assess the ability of an entity, often a property owner or business, to cover its debt obligations with its income. It is calculated by dividing the net operating income (NOI) by the total debt service (which includes mortgage payments).

Net operating income reflects the income generated from the property after deducting operating expenses, such as maintenance, utilities, and property management. On the other hand, the total debt service includes all required payments on a mortgage, including both principal and interest.

Thus, the correct answer focuses on these two critical components: net operating income, which measures the productive earnings of the property, and mortgage payments representing the actual debt obligations. This calculation helps lenders gauge the risk of lending to a property owner, as a higher DSCR indicates a greater ability to repay debts, which is essential for making informed lending decisions.