Most commercial lenders size a loan three ways, by loan-to-value (LTV), debt service coverage ratio (DSCR) and debt yield, and lend the lowest of the three results. Which test sets your loan depends on the property's cap rate, the interest rate and amortization, and the lender's minimums. You can work out in advance which one will bind and how much NOI it would take to move it.
The three tests in one place
Each test answers a different question about the same deal:
| Test | Formula | What it protects against | What moves it |
|---|---|---|---|
| LTV | Loan ÷ appraised value | A drop in value | Appraisal, cap rate |
| DSCR | NOI ÷ annual debt service | Cash flow too thin to pay the loan | NOI, interest rate, amortization |
| Debt yield | NOI ÷ loan amount | A loan too large for the income, whatever the rate | NOI only |
Each formula can be turned around to give a maximum loan:
- LTV: maximum loan = value × maximum LTV
- DSCR: maximum loan = NOI ÷ minimum DSCR ÷ mortgage constant
- Debt yield: maximum loan = NOI ÷ minimum debt yield
The mortgage constant is the annual payment per dollar borrowed. For a 30-year amortizing loan at 6.50%, it is 7.585%. On an interest-only loan, the constant equals the interest rate.
Debt yield exists because the other two can be flattered. An aggressive appraisal raises the LTV loan, and a low rate or an interest-only period raises the DSCR loan. Debt yield looks only at income against principal, so neither helps it. For how conduit lenders apply all three at closing, see our guide to CMBS loan requirements.
Where the minimums come from
There is no single set of thresholds. Regulatory and agency figures are limits, and lenders usually set their own inside them.
- Bank LTV ceilings. The federal banking agencies' interagency real estate lending guidelines set supervisory LTV limits of 65% for raw land, 75% for land development, 80% for commercial and multifamily construction, and 85% for improved property. The same guidelines say LTV "is only one of several pertinent credit factors," and they list the property's income and the borrower's capacity to service the debt among the others.
- Agency multifamily. Fannie Mae's fixed-rate multifamily term sheet lists a minimum DSCR of 1.25x and a maximum LTV of 80% for conventional properties. Other asset classes and products carry their own term sheets.
- CMBS. Conduit and single-asset deals are typically sized inside those limits. CREFC Research's new-issue snapshot, built on Commercial Mortgage Alert data for 2026 through October 9, shows deal-weighted averages of a 12.4% debt yield and 59.3% LTV on 5-year conduit deals and 16.2% and 52.9% on 10-year conduit deals (both excluding multifamily-only conduits), and 9.4% and 69.3% on floating-rate single-asset deals. Debt yield there is measured on underwritten NOI.
Bridge lenders and banks set their own minimums by property type, market and sponsor, and they move with the market. Treat any number on a term sheet as that lender's view of that deal.
A worked example: one property, three answers
Take a stabilized multifamily property with these illustrative assumptions (they are not a quote or an offer of terms):
- Appraised value: $10,000,000
- Underwritten NOI: $640,000 (a 6.40% cap rate)
- Lender minimums: 75% maximum LTV, 1.25x minimum DSCR, 9.0% minimum debt yield
- Loan terms: 6.50% interest, 30-year amortization (mortgage constant 7.585%)
| Test | Arithmetic | Maximum loan |
|---|---|---|
| LTV | $10,000,000 × 75% | $7,500,000 |
| DSCR | $640,000 ÷ 1.25 = $512,000 of debt service; $512,000 ÷ 7.585% | $6,750,328 |
| Debt yield | $640,000 ÷ 9.0% | $7,111,111 |
The DSCR test binds, so the loan is about $6.75 million, or 67.5% LTV, and its debt yield is 9.48%. Each of the other two tests would size a larger loan that the DSCR test rejects:
| Loan amount | LTV | DSCR | Debt yield |
|---|---|---|---|
| $7,500,000 (LTV result) | 75.0% | 1.13x | 8.53% |
| $7,111,111 (debt yield result) | 71.1% | 1.19x | 9.00% |
| $6,750,328 (DSCR result) | 67.5% | 1.25x | 9.48% |
A sponsor who planned around 75% leverage would be about $750,000 short at closing. That gap has to come from more equity, a different structure, or a lender with different minimums.
The shortcut: compare three required yields
Each test can be expressed as a minimum ratio of NOI to loan amount. The highest ratio is the one that binds.
- LTV test: cap rate ÷ maximum LTV = 6.40% ÷ 75% = 8.53%
- DSCR test: minimum DSCR × mortgage constant = 1.25 × 7.585% = 9.48%
- Debt yield test: the minimum itself = 9.00%
The largest is 9.48%, and $640,000 ÷ 9.48% is the same $6.75 million. This gives you the answer before you open a model, and it shows where each test flips:
- DSCR binds over debt yield whenever the mortgage constant exceeds the debt yield minimum divided by the DSCR minimum. Here that is 9.0% ÷ 1.25 = 7.20%. A 30-year loan reaches that constant at an interest rate just above 6.0%.
- LTV binds over debt yield whenever the cap rate exceeds the maximum LTV times the debt yield minimum. Here that is 75% × 9.0% = 6.75%. Buy the same income at a higher cap rate and the appraisal becomes the limit.
How the binding test changes with the rate
Holding the property and lender minimums constant, here is the same deal across a range of interest rates on 30-year amortization:
| Interest rate | Mortgage constant | DSCR loan | Debt yield loan | LTV loan | Loan amount | Binding test |
|---|---|---|---|---|---|---|
| 5.50% | 6.813% | $7,514,529 | $7,111,111 | $7,500,000 | $7,111,111 | Debt yield |
| 6.00% | 7.195% | $7,116,442 | $7,111,111 | $7,500,000 | $7,111,111 | Debt yield |
| 6.50% | 7.585% | $6,750,328 | $7,111,111 | $7,500,000 | $6,750,328 | DSCR |
| 7.00% | 7.984% | $6,413,123 | $7,111,111 | $7,500,000 | $6,413,123 | DSCR |
| 7.50% | 8.391% | $6,102,085 | $7,111,111 | $7,500,000 | $6,102,085 | DSCR |
At lower rates the debt yield test caps the loan, which is the situation it is designed for. As rates rise, the DSCR test takes over and the loan shrinks by roughly $310,000 to $370,000 for each half point. The 10-year Treasury averaged 4.99% in September 2026, up from 4.47% in June, and the daily reading was 5.00% on October 26, according to FRED. Commercial loan pricing typically includes a spread over a benchmark, so a higher base rate tends to push the mortgage constant, and the DSCR test, up with it.
Interest-only periods change the arithmetic. If a lender tests DSCR on interest-only payments, the constant equals the rate. At 7.50% interest-only, the DSCR test implies 1.25 × 7.50% = 9.375%, a loan of about $6.83 million. Some lenders test DSCR on an amortizing payment even during an interest-only period, so ask which basis the term sheet uses.
When the appraisal binds instead
Keep the $640,000 of NOI but assume the property appraises at $8,500,000, a 7.53% cap rate. The LTV test now implies 7.53% ÷ 75% = 10.04%, above both the DSCR figure (9.48%) and the debt yield minimum (9.00%). The loan falls to $6,375,000, and more income would not raise it unless the appraiser also capitalized that income into a higher value. Higher-cap-rate markets and property types tend to run into this test first.
When NOI is not yet stabilized
On a value-add property, the binding test depends on which NOI the lender uses. If the same property's in-place NOI were $520,000 rather than the $640,000 stabilized figure, the debt yield test at 9.0% would support $5,777,778 and the DSCR test at 6.50% would support $5,484,642. Lenders who size on in-place income may fund the rest through future advances tied to leasing or renovation milestones, while others size on projected income with tighter controls. Our article on stabilized vs. in-place NOI covers how lenders reconcile the two.
What it takes to move each test
Turn the formulas around again and you can see what each lever would require. To support $7,500,000 on the example deal at 6.50% and 30-year amortization:
| Test | NOI needed | Change from $640,000 |
|---|---|---|
| DSCR at 1.25x | $711,077 | +$71,077 (+11.1%) |
| Debt yield at 9.0% | $675,000 | +$35,000 (+5.5%) |
| LTV at 75% | No NOI change; needs a $10,000,000 value | Already met |
Other levers include longer amortization (which lowers the constant), an interest-only period if the lender tests on interest-only payments, a lender with a lower debt yield minimum, or a smaller senior loan with preferred equity or mezzanine capital filling the gap. Each one shifts risk and cost somewhere else, and capital providers set the actual terms after underwriting.
How to use this before you go to market
- Underwrite NOI the way a lender will. Use trailing collections, market vacancy, a management fee and replacement reserves, not the pro forma.
- Compute all three ratios. Cap rate ÷ LTV, DSCR × constant, and the debt yield minimum. The largest tells you which test binds. Our DSCR calculator handles the debt service side.
- Run the rate sensitivity. If DSCR binds, every quarter point of rate movement before closing changes your proceeds.
- Match the deal to the lender. A stabilized multifamily property near the DSCR line may size differently with an agency, a bank, a debt fund or a bridge lender, because each sets its minimums and amortization differently.
Bottom line
Your loan amount is the lowest of three answers, and you can find which one binds by comparing three numbers: the cap rate divided by the LTV limit, the DSCR minimum times the mortgage constant, and the debt yield minimum. In the example deal, the DSCR test held proceeds to 67.5% of value, well below the 75% LTV limit. Run that comparison before you set a purchase price or an equity budget, so the shortfall shows up in your model before it shows up in a term sheet.