To size a commercial real estate loan, calculate the maximum loan under each of the lender's constraints and take the smallest. The three standard tests are minimum DSCR (coverage), maximum LTV (leverage) and minimum debt yield (NOI against the loan amount). The test that produces the lowest number is the binding constraint, and that is the most the lender will quote.
The three sizing tests
| Test | Formula for maximum loan | What it protects against |
|---|---|---|
| DSCR | (NOI ÷ min DSCR) ÷ mortgage constant | Cash flow not covering payments |
| LTV | Value × max LTV | Too little equity cushion against value |
| Debt yield | NOI ÷ min debt yield | Over-lending when rates or cap rates are low |
For construction and value-add deals, lenders add LTC (loan ÷ total project cost) and often size on a stabilized NOI with a lower initial advance.
All three start from underwritten NOI, not the seller's figure. If you have not built one yet, see how to read a rent roll and T-12.
The mortgage constant
The DSCR test needs the annual debt service for a given loan. The mortgage constant turns that into one number:
Mortgage constant = annual debt service ÷ loan amount
It depends only on the interest rate and the amortization period. On an interest-only loan, the constant equals the interest rate.
| Rate | 25-year amortization | 30-year amortization | Interest-only |
|---|---|---|---|
| 6.00% | 7.73% | 7.19% | 6.00% |
| 6.50% | 8.10% | 7.58% | 6.50% |
| 6.75% | 8.29% | 7.78% | 6.75% |
| 7.00% | 8.48% | 7.98% | 7.00% |
Monthly payments, annualized. Rates shown are illustrative, not current market quotes.
Once you have the constant, the DSCR-based maximum loan is simple:
Max loan (DSCR) = NOI ÷ min DSCR ÷ mortgage constant
Worked example
A broker is sizing a refinance on a stabilized industrial property.
Inputs:
| Input | Value |
|---|---|
| Underwritten NOI | $1,200,000 |
| Value (6.5% cap rate, supported by comps) | $18,500,000 |
| Interest rate | 6.75% |
| Amortization | 30 years |
| Mortgage constant | 7.78% |
| Lender minimum DSCR | 1.25x |
| Lender maximum LTV | 70% |
| Lender minimum debt yield | 9.0% |
Test 1: DSCR
- Maximum annual debt service = $1,200,000 ÷ 1.25 = $960,000
- Maximum loan = $960,000 ÷ 0.0778 = $12,334,000
Test 2: LTV
- Maximum loan = $18,500,000 × 70% = $12,950,000
Test 3: Debt yield
- Maximum loan = $1,200,000 ÷ 9.0% = $13,333,000
Result:
| Test | Maximum loan |
|---|---|
| DSCR (1.25x) | $12,334,000 (binding) |
| LTV (70%) | $12,950,000 |
| Debt yield (9.0%) | $13,333,000 |
The DSCR test binds at about $12.33 million. At that amount, LTV is 66.7% and debt yield is 9.7%, both inside the lender's limits. If the sponsor asks for $13 million, this lender will come back lower or decline.
What changes the answer:
- Interest-only sizing. If the lender sizes coverage on the 6.75% interest-only payment, the DSCR maximum rises to $960,000 ÷ 0.0675 = $14.2 million. LTV then binds at $12.95 million.
- A lower rate. At 6.0% on a 30-year amortization (7.19% constant), DSCR allows about $13.35 million, and LTV binds.
- A lower value. If the lender's appraisal comes in at $17.5 million, LTV falls to $12.25 million and becomes binding.
Run your own numbers with the loan sizing calculator, or each test separately with the DSCR, LTV and debt yield calculators.
Sizing backwards: what NOI do you need?
Sometimes the sponsor knows the loan they need and you have to check whether the property can support it. Run the formulas in reverse:
- NOI needed for DSCR = loan × mortgage constant × min DSCR
- NOI needed for debt yield = loan × min debt yield
- Value needed for LTV = loan ÷ max LTV
For a $13.0 million request at the same 7.78% constant, 1.25x DSCR, 9.0% debt yield and 70% LTV:
| Requirement | Needed | Actual | Pass? |
|---|---|---|---|
| NOI for 1.25x DSCR | $1,265,000 | $1,200,000 | No |
| NOI for 9.0% debt yield | $1,170,000 | $1,200,000 | Yes |
| Value for 70% LTV | $18,571,000 | $18,500,000 | Just short |
The request fails coverage by $65,000 of NOI and misses leverage by a hair. That gap is the conversation to have with the sponsor before any lender sees the deal: lower the request, find more NOI the lender will credit, or look for a lender whose box accepts lower coverage or interest-only sizing.
Why the binding constraint differs by lender
Two lenders can look at the same deal and offer different proceeds, because each runs the same three tests with different inputs:
| Lender | Min DSCR | Max LTV | Min debt yield | Rate / amortization | Max loan |
|---|---|---|---|---|---|
| Lender 1 | 1.25x | 70% | 9.0% | 6.75%, 30 yr | $12.33M (DSCR) |
| Lender 2 | 1.20x | 65% | 8.5% | 6.50%, 30 yr | $12.03M (LTV) |
| Lender 3 | 1.30x | 75% | 10.0% | 6.25%, IO sizing | $12.00M (debt yield) |
Illustrative lenders, not real programs. Lender 1 offers the most proceeds even though it does not have the loosest test on any single metric. This is why brokers size the deal against each lender's actual box rather than against a market average.
Typical ranges
Lender requirements vary by lender type, asset class, market, sponsor and the credit cycle. As a rough orientation only:
| Metric | Commonly seen for stabilized assets |
|---|---|
| Minimum DSCR | 1.20x to 1.35x; higher for hospitality and some specialty assets |
| Maximum LTV | 55% to 75%; agency multifamily programs can go higher |
| Minimum debt yield | 8% to 10% for many permanent lenders |
Bridge and construction lenders size differently: often on LTC and a stabilized "as-completed" value, with interest reserves covering payments until the property produces income.
Sizing for value-add and construction
- Initial advance: based on current value or cost, often lower leverage.
- Future funding: capex or construction draws advanced as work is completed.
- Total loan: limited by LTC on total cost and by LTV on the as-stabilized value.
- Exit test: the stabilized NOI must support a refinance into a permanent loan at the lender's assumed takeout DSCR and debt yield.
If the exit test fails, the bridge or construction loan usually gets cut, regardless of the initial numbers.
Filling the gap
When the binding constraint leaves the sponsor short, the gap can sometimes be filled higher in the capital stack:
- Mezzanine debt, secured by the ownership interest
- Preferred equity, with priority returns ahead of common equity
- More sponsor equity
Each adds cost and complexity. Size the senior loan correctly first, then decide whether the gap is worth filling.
Sizing step by step
- Build underwritten NOI. In-place income, market vacancy, normalized expenses, management fee, reserves.
- Support a value. Underwritten NOI divided by a cap rate backed by sale comps.
- Get the lender's inputs. Minimum DSCR, maximum LTV or LTC, minimum debt yield, rate assumption and amortization.
- Compute the mortgage constant for that rate and amortization.
- Run each test and record the maximum loan from each.
- Take the lowest. That is the binding constraint and the realistic request.
- Check the request against it. If the sponsor needs more, decide between a different lender, a different structure, or more equity.
Write the result into the memo, stating which test binds. Lenders read that as a sign the request was sized properly.
Common sizing mistakes
- Sizing on the seller's NOI instead of underwritten NOI
- Using the interest-only payment when the lender sizes on amortizing debt service
- Forgetting reserves and management fee in NOI
- Requesting the LTV maximum when DSCR binds
- Using an aspirational value instead of one supported by comps
- Ignoring the exit test on bridge and construction loans
A request above the binding constraint does not get you more money. It gets you a counter-offer or a pass, and it signals that the deal was not underwritten. See what lenders look for in a CRE loan request.
How Dori sizes against every lender
Every lender has its own minimum DSCR, maximum LTV and loan size range, so the binding constraint differs lender to lender. Dori extracts NOI and value from your files, populates your underwriting model, and scores the deal against more than 800 lender profiles, each with its real box. Hard fails are surfaced separately, so you only send to lenders where the numbers work.