Question 1

How do lenders decide the maximum loan amount?

Accepted Answer

Commercial and rental lenders run several sizing tests and lend the smallest result. The three most common are debt service coverage ratio (DSCR), loan-to-value (LTV), and debt yield. Each produces a maximum loan, and the lowest of the three — the binding constraint — sets the actual loan amount. This calculator runs all three at once and tells you which one is holding the loan back.

Question 2

How is the DSCR-constrained loan amount calculated?

Accepted Answer

Start with net operating income and divide by the lender's minimum DSCR to find the largest annual debt service allowed — that's the most the property's income can support while keeping the required cushion. Divide by 12 for a monthly payment, then convert that payment into a loan balance using the interest rate and amortization term. A lower rate, longer amortization, or interest-only period each raise the loan the same income can support.

Question 3

What is debt yield and why do lenders use it?

Accepted Answer

Debt yield is net operating income divided by the loan amount, shown as a percentage — the return the lender would earn if it had to foreclose and own the property at the loan basis. Lenders adopted it widely after 2008 because, unlike DSCR and LTV, it doesn't get distorted by low interest rates or inflated appraisals. A common minimum is around 8–10%. To size from it, divide NOI by the minimum debt yield: a property with $50,000 NOI at a 10% minimum supports a $500,000 loan.

Question 4

What is the difference between DSCR, LTV, and debt yield?

Accepted Answer

All three cap the loan, but from different angles. DSCR limits the loan by the property's ability to cover the payment, so it moves with interest rates and amortization. LTV limits the loan to a share of appraised value, so it moves with the property's price. Debt yield limits the loan to a multiple of net income and ignores both rates and value, which is why lenders treat it as a rate-proof backstop. A deal can pass two and fail the third.

Question 5

Which constraint is usually binding?

Accepted Answer

It depends on the rate environment and the deal. When interest rates are high, the DSCR test usually binds first, because the payment eats up the income cushion before LTV or debt yield is reached — this is why loan amounts shrank as rates rose. When rates are low and prices are high, LTV or debt yield tends to bind instead. The calculator labels the binding test for your specific inputs so you know which lever actually moves your maximum loan.

Question 6

How can I increase my maximum loan amount?

Accepted Answer

It depends on which test is binding. If DSCR is the constraint, lower the rate (including a buydown), extend amortization, or use an interest-only period — all raise the loan the same income supports. If LTV is binding, you need a higher appraised value or simply more down payment; better loan terms won't help. If debt yield is binding, only higher net operating income or a smaller loan moves it. Raising NOI helps all three at once.

Question 7

Does this work for residential DSCR loans too?

Accepted Answer

Yes, with a caveat about how NOI is measured. Commercial and multifamily lenders size against true net operating income (rent after vacancy and operating expenses), which is what this calculator uses. Many residential non-QM DSCR lenders instead use gross rent over PITIA and may not apply a debt-yield test at all. If you're sizing a residential DSCR loan, use the DSCR Calculator's residential method for the ratio itself, and treat the LTV result here as the more relevant constraint.

Question 8

What down payment will I need?

Accepted Answer

Your down payment is the gap between the purchase price and the maximum loan the property supports. If a property is priced at $625,000 and the binding constraint caps the loan at $500,000, you'd need $125,000 down plus closing costs. The calculator shows this gap so you can see the equity required.

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