Formula for Debt Service Ratio: DSCR Guide & Examples
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Key terms
- Debt-to-Income Ratio (DTI)The percentage of your gross monthly income that goes toward paying debts. Lenders use DTI to assess your ability to manage monthly payments and repay borrowed money.
- Debt-to-Income RatioA financial metric that compares your total monthly debt payments to your gross monthly income, expressed as a percentage. Lenders use this ratio to assess your ability to take on additional debt, and most mortgage lenders prefer a ratio below 43%. A lower debt-to-income ratio indicates you have a healthy balance between debt and income.
- Expense RatioThe annual fee that all funds or ETFs charge their shareholders, expressed as a percentage of assets. Lower expense ratios mean more of your money is invested rather than going to fees.
- Loan-to-Value Ratio (LTV)The ratio of a loan amount to the appraised value of the property, expressed as a percentage. Lower LTV ratios typically result in better loan terms and may avoid PMI requirements.
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