Q: Does this Debt Constant factor in minimum DSC requirement? or is it at 1.0x?
A: The Debt Service Constant is separate from a lender's debt service coverage requirement. The proposed loan amount for a subject property is multiplied by the Debt Service Constant - a unique number for every combination of a) an interest rate, b) an amortization period, and c) a payment frequency, e.g., monthly, quarterly, or annually - to determine the annual debt service for the proposed term loan. Whether the resulting annual debt service meets a minimum debt service coverage requirement is then determined by dividing the underwriting NOI for the subject property by the annual debt service.
If you wish to explore the debt service constant, click on the link and follow the pop-up guidance on the worksheet screen.
Course overview: Underwriting Standards, Actual vs. Stabilized NOI, and Breakeven Analysis