Loan Sizing Calculator: DSCR, LTV, and Debt Yield Constraints

Loan Sizing Calculator: DSCR, LTV, and Debt Yield Constraints

Ask a lender "how much will you lend on this property?" and the honest answer is three calculations and a minimum. Commercial loans are sized against up to three independent constraints — loan-to-value, debt service coverage, and debt yield — and the proceeds you actually get are the lowest of the three. Borrowers who model only one constraint (usually LTV, because it is the one on the marketing flyer) routinely discover the real number at term-sheet time, when the discovery costs equity or the deal.

The free loan sizing calculator on this page runs all three constraints side by side and flags which one binds. This guide explains each constraint's logic, walks one deal through the triple test — including the rate move that flips the answer — and covers what the identity of the binding constraint tells you about your deal. All figures are illustrative examples; specific thresholds are lender and program facts that belong on a term sheet, not in an article.

The Three Constraints

Constraint 1 — Loan-to-Value (LTV). The value test: proceeds capped at a percentage of the purchase price or appraised value. Max loan = Value × Max LTV. LTV protects the lender's recovery in a foreclosure — it is about what the collateral is worth, not what it earns.

Constraint 2 — Debt Service Coverage (DSCR). The payment test: underwritten NOI must exceed annual debt service by a stated multiple. Run backward, it caps proceeds at the loan whose payment the income supports: Max loan = (NOI ÷ Min DSCR) ÷ annual mortgage constant. Because the constant embeds the rate and amortization, this is the constraint that moves when the market does — the full mechanics are in the DSCR calculator guide.

Constraint 3 — Debt Yield. The rate-proof test: NOI as a percentage of the loan amount, with proceeds capped at NOI ÷ Min Debt Yield. Debt yield ignores rate and amortization entirely — which is exactly its purpose. A lender burned by cycles knows that low rates and long amortization can make coverage look fine on a loan that is simply too large for the income; debt yield asks the un-flatterable question, how much income per dollar of loan, period.

One Deal, Three Answers

Illustrative deal: a property valued at $8,000,000 producing $520,000 of underwritten NOI (a 6.5% cap). The lender's box: 65% max LTV, 1.25x minimum DSCR, 9% minimum debt yield, quoting an illustrative 6.75% on 30-year amortization.

• LTV: 65% × $8,000,000 = $5,200,000
• DSCR: $520,000 ÷ 1.25 = $416,000 of maximum debt service; at a ~7.78% annual constant, a maximum loan of about $5,345,000
• Debt yield: $520,000 ÷ 9% = about $5,778,000

Proceeds: $5,200,000 — LTV binds. The deal is value-constrained: the income could service more debt than the collateral test allows. That is the classic shape of a low-cap-rate deal — expensive relative to its income — and the diagnosis matters, as we will see below.

Now move rates 75 basis points, to 7.5%. The LTV and debt-yield answers do not move at all. The DSCR answer does: the annual constant rises to ~8.39%, and the coverage-constrained loan falls to about $4,958,000 — below the LTV number. The binding constraint has flipped, and proceeds are now roughly $242,000 lower than the LTV-only calculation still cheerfully reports. This flip — silent, rate-driven, and invisible to anyone modeling one constraint — is the single most practical reason the calculator runs all three: in rising-rate windows, deals negotiated as LTV-constrained routinely close as DSCR-constrained, and the gap is equity the borrower finds at the worst possible time.

(For symmetry: a lender requiring a 10% debt yield instead of 9% would cap this deal at exactly $5,200,000 — tying the LTV test. Debt yield tends to bind on high-leverage requests against thin income, which is precisely the profile it exists to police.)

What the Binding Constraint Diagnoses

The identity of the governing test is not trivia — it is a one-word diagnosis of the deal:

• LTV-bound: the deal is price-limited. The income supports more debt than the value test allows, which usually means a low-cap acquisition. The leverage conversation is about valuation, and an appraisal miss is your proceeds risk.
• DSCR-bound: the deal is income-limited at current rates. Proceeds are hostage to the rate between now and closing — stress it — and every dollar of underwritten NOI is worth several dollars of loan (at a 1.25x/7.78% box, each NOI dollar carries about ten dollars of proceeds), which prices the lender's NOI haircuts in immediate, concrete terms.
• Debt-yield-bound: the request is leverage-limited in the structural sense — too much loan per dollar of income for the lender's cycle tolerance, regardless of today's rate. The fix is not negotiation mechanics; it is less leverage or more income.

Borrowers using DSCR-style rental loan programs will recognize a cousin of this logic — those programs tier pricing on the ratio rather than sizing to it, per the DSCR loan calculator guide — but the triple-constraint structure above is the commercial convention.

Using the Calculator Properly

Three disciplines turn the tool from arithmetic into underwriting:

1. Feed it underwritten NOI, not pro forma. Lenders apply vacancy floors, management floors, and reserve deductions before any constraint runs; sizing on your unhaircut NOI overstates two of the three tests at once.
2. Stress the rate on every run. The quoted rate sizes the DSCR constraint today; the closing-day rate sizes the loan you get. Run the triple test at the quote and at meaningfully higher rates, and note the flip point.
3. Read the margins, not just the minimum. How far is each non-binding constraint from binding? A deal where all three tests land within a few percent of each other has no slack anywhere — any input moving against you (appraisal, rate, underwritten NOI) cuts proceeds immediately.

The three constraints also firm up on different clocks between quote and close, which is worth modeling as a timeline rather than a snapshot. The LTV answer is provisional until the appraisal lands — an appraised value below your purchase price cuts the value-constrained loan the same day. The DSCR answer floats with the rate until it locks. The debt-yield answer moves only with the lender's underwritten NOI, which crystallizes during diligence as their vacancy and management floors and reserve deductions get applied to your numbers. A borrower tracking which inputs are still live — and rerunning the triple test as each one lands — is never surprised at commitment; a borrower who ran it once at the quote usually is.

Frequently Asked Questions

What are typical LTV, DSCR, and debt yield requirements? Ranges commonly discussed for stabilized commercial and multifamily property cluster around 60–75% LTV, 1.20–1.30x DSCR, and high-single-digit to 10%+ debt yields — varying by asset class, market, lender type, and cycle. Treat every specific threshold as a term-sheet fact to confirm, not a constant.

Why do lenders use debt yield if they already have DSCR? Because DSCR can be flattered by the loan's own terms — low rates, long amortization, interest-only periods — while debt yield cannot. It is the lender's protection against sizing generous loans at the top of a rate cycle.

Which constraint usually binds? It depends on the deal's shape and the rate environment: low-cap (expensive) deals tend toward LTV-bound; higher-rate environments push deals DSCR-bound; aggressive leverage requests hit debt yield. The point of the calculator is that "usually" is not an underwriting answer — compute all three.

Can I negotiate the binding constraint? Sometimes at the margins (a different program, a rate buydown to relieve DSCR, mezzanine or preferred equity behind the senior for the leverage gap) — but each fix has a price, and the first step is knowing which constraint you are negotiating with. The calculator's binding-constraint flag is that first step.

From Sizing to the Full Debt Analysis

The free calculator on this page runs the triple test and flags the governor. The DSCR & Debt Underwriting Calculator is the full Excel implementation: all three constraints with the binding one flagged, the lender-convention NOI adjustments as inputs, a complete amortization schedule with by-year coverage, and rate stress built in — fully unlocked, formula-transparent, versioned, with a documented methodology PDF. For the guided web version, the YieldSheets platform is in development — join the waitlist.

This article is for educational purposes only and does not constitute investment, legal, or tax advice. All figures are illustrative examples, not rate quotes or lender terms; requirements vary and term sheets govern. Consult qualified professionals before making investment decisions.