When a lender looks at your commercial deal, they care about two things above everything else: can the property service the debt (DSCR), and how much of the purchase price are we lending (LTV). Every commercial loan in the country is underwritten to these two numbers first, with a third (debt yield) increasingly showing up on larger deals.

If you learn to calculate and target these three metrics yourself, you'll know your loan proceeds before you ever call a lender.

Debt Service Coverage Ratio (DSCR)

It answers one question: how much NOI do I have for every dollar of mortgage payment?

DSCR of 1.00 — NOI exactly covers debt service. Zero margin of safety.
DSCR of 1.20 — NOI is 20% more than debt service. Standard lender minimum.
DSCR of 1.40 — Conservative. Common for institutional lenders and larger deals.
DSCR of 1.50+ — Very conservative. Often required for riskier asset classes or weaker markets.

Example. A property produces $200,000 NOI. The loan would cost $150,000 in annual debt service.

DSCR = $200,000 ÷ $150,000 = 1.33

That passes most lenders' 1.25 minimum. Plenty of cushion.

Why lenders care

If NOI drops temporarily — a tenant leaves, expenses spike — can the property still make its mortgage payment? A DSCR of 1.00 means any bad month puts you in default. A DSCR of 1.25+ gives everyone breathing room.

Lenders require minimum DSCRs that vary by asset class and deal type:

| Asset type | Typical minimum DSCR | |---|---| | Multifamily (agency debt) | 1.25 | | Stabilized NNN retail | 1.25 | | Office / retail | 1.30–1.40 | | Self-storage | 1.30 | | Hospitality | 1.40–1.50 | | Construction / bridge | 1.15–1.25 | | Ground-up development | Debt service isn't the test — debt yield is |

DSCR is the #1 loan sizing constraint

On most commercial loans, the lender sizes the loan to whichever of these gives the smaller number:

Max LTV (see below)
Minimum DSCR based on interest rate and amortization

In a rising-rate environment, DSCR is almost always the binding constraint — meaning the lender gives you less leverage than you'd get based on LTV alone.

Loan-to-Value ratio (LTV)

This one's simple: what percentage of the purchase is the lender financing?

Example. A $2,000,000 property financed with a $1,400,000 loan = 70% LTV.

Typical maximum LTVs by loan type (2026)

| Loan type | Max LTV | |---|---| | Conventional bank (stabilized CRE) | 70–75% | | Agency (Fannie/Freddie multifamily) | 75–80% | | CMBS | 65–75% | | SBA 504 (owner-user) | 85–90% | | SBA 7a | up to 90% | | Bridge (value-add) | 75–80% | | Hard money | 60–70% | | Ground-up construction | 65–75% loan-to-cost |

Higher LTV = more leverage = higher return when deals work, but much bigger risk if they don't. Most sophisticated investors target 65–75% LTV on stabilized deals and push to 75–80% on value-add.

A note on "LTV vs. LTC"

On value-add or development deals, you'll also see loan-to-cost (LTC), which is the loan as a percentage of total project cost (purchase + renovation budget) rather than as a percentage of value.

LTV at stabilization — loan ÷ projected value after business plan
LTC at closing — loan ÷ total project cost

On a value-add deal, these can be very different. A $5M purchase plus $1M renovation = $6M total cost. If the lender funds $4.5M, that's 75% LTC. If the post-renovation value is $7.5M, the same $4.5M loan is 60% LTV at stabilization.

Bridge lenders use LTC for sizing; permanent lenders use LTV.

Debt yield (the third metric)

A newer check, especially common on CMBS and larger bank loans:

It answers: if we had to foreclose and take the property, what yield would the loan balance produce?

Example. $200,000 NOI on a $1,500,000 loan = 13.3% debt yield.

Lender minimums typically:

Institutional debt — 8–10% debt yield minimum
Agency multifamily — 7–8%
CMBS — 8–10%
Bridge / value-add — 6–8% at closing, 9–10% at stabilization

Debt yield is leverage-agnostic, interest-rate-agnostic, and amortization-agnostic. That makes it the cleanest measure of loan risk — and it's become especially important in the high-rate environment because it doesn't get distorted by low or high rates the way DSCR does.

How to size your own loan before calling a lender

Here's the exact math every investor should know. Given a property with an NOI of $200,000, a target of 1.25 DSCR, a 6.5% interest rate, and a 25-year amortization:

Step 1: Maximum annual debt service. $200,000 NOI ÷ 1.25 DSCR = $160,000 max annual debt service.

Step 2: Convert annual debt service to loan balance. This requires a loan constant calculation (or just use a spreadsheet's PV function). At 6.5% interest over 25 years, the annual loan constant is approximately 0.081.

Maximum loan = $160,000 ÷ 0.081 = $1,975,000

Step 3: Cross-check against LTV. If the purchase price is $3,000,000, then 75% LTV = $2,250,000 max by LTV.

Step 4: Pick the smaller number. DSCR-constrained loan is $1,975,000; LTV-constrained is $2,250,000. Your actual loan size will be $1,975,000 — the smaller one.

Step 5: Cross-check debt yield. $200,000 NOI ÷ $1,975,000 loan = 10.1% debt yield. Passes a typical 9% minimum.

That's the exact sequence lenders run. If you can do it yourself before your call, you'll know immediately whether the deal works with current financing.

What happens when the numbers don't work

If DSCR comes up short, you have four options:

Lower the loan amount — reduce leverage, put in more equity
Lower the interest rate — shop for better financing
Extend the amortization — 30-year am instead of 25-year lowers payments
Grow NOI — raise rents, reduce expenses, fill vacancies

On a tight deal, a switch from 25-year to 30-year amortization can push DSCR from 1.20 to 1.32 — enough to close a deal that otherwise wouldn't qualify. This is why lender shopping matters.

What to take away

DSCR = NOI ÷ Annual Debt Service. Lenders typically require 1.20–1.40 minimum.
LTV = Loan ÷ Value (or purchase price, whichever is lower). Max 65–80% depending on loan type.
Debt yield = NOI ÷ Loan. The cleanest measure of loan risk, increasingly used on larger deals.
The binding constraint is usually whichever of DSCR, LTV, or debt yield gives the smaller loan size.
You can size your own loan before calling a lender by working through DSCR and LTV yourself.
If the numbers don't work, lengthening amortization or lowering the loan amount are the two fastest fixes.

Next lesson: cash flow, IRR, and equity multiple — how sophisticated investors measure total return over a multi-year hold.

DSCR and LTV — The Two Numbers Your Lender Cares About