What it is
Loan sizing is how a lender decides how much it will lend. Each lender sets limits on several metrics. It calculates the maximum loan allowed by each one, then lends the smallest of them. Whichever limit produces that smallest number is called the binding constraint.
The three common constraints
- LTV: value × maximum LTV.
- DSCR: NOI ÷ minimum DSCR gives the maximum annual debt service. Divide that by the loan constant to get the loan.
- Debt yield: NOI ÷ minimum debt yield.
Construction lenders add LTC. Some lenders add their own tests, such as a maximum loan per unit.
Worked example
A stabilized property with $1,200,000 of underwritten NOI and a $20,000,000 value. The lender's limits: 70% maximum LTV, 1.25x minimum DSCR, 10% minimum debt yield. Rate 6.00% with 30-year amortization, so the loan constant is about 7.19%.
| Constraint | Calculation | Max loan |
|---|---|---|
| LTV | $20,000,000 × 70% | $14,000,000 |
| DSCR | $1,200,000 ÷ 1.25 = $960,000 ÷ 7.19% | $13,343,000 |
| Debt yield | $1,200,000 ÷ 10% | $12,000,000 |
| Loan | Smallest of the three | $12,000,000 |
Debt yield binds. The sponsor who expected 70% leverage gets 60%. The numbers are illustrative; try your own in the loan sizing calculator.
Why the binding constraint matters
Knowing which constraint binds tells you where to look for more proceeds.
- If DSCR binds, a longer amortization, an interest-only period or a lower rate can help.
- If debt yield binds, only more NOI helps, or a lender with a lower debt yield minimum.
- If LTV binds, better value support or a lender with higher leverage limits.
It also tells you which lenders to call. A deal bound by debt yield at one lender may size to full LTV at another with a different box.
Common mistakes
- Sizing on one metric. A deal that works at 75% LTV can still fail DSCR.
- Using your NOI, not the lender's. Lenders underwrite their own NOI, usually lower.
- Promising proceeds before running the numbers. Sponsors remember the first number they hear.
In the package
State the requested loan, show all three metrics at that amount, and note which one is tightest. For a full walkthrough, read how to size a commercial real estate loan. Dori checks each deal against every lender's limits in lender matching, so you can see which lenders the request actually fits.