CRE Loan Sizing Example: DSCR, LTV, and Debt Yield Step by Step

Here is a simple commercial real estate loan sizing example using the three constraints most lenders check: LTV, DSCR, and debt yield.

Assume:

• NOI: $1,200,000
• Property value: $16,000,000
• Max LTV: 75%
• Minimum DSCR: 1.25x
• Minimum debt yield: 10%
• Interest rate: 6.50%
• Amortization: 30 years

Step 1: Max loan by LTV

Max Loan by LTV = Property Value x Max LTV
Max Loan by LTV = $16,000,000 x 75% = $12,000,000

The collateral supports $12,000,000.

Step 2: Max loan by debt yield

Max Loan by Debt Yield = NOI / Minimum Debt Yield
Max Loan by Debt Yield = $1,200,000 / 10% = $12,000,000

The income floor also supports $12,000,000.

Step 3: Max loan by DSCR

DSCR sizing converts NOI into maximum annual debt service, then converts annual debt service into loan proceeds using the loan constant.

Max Annual Debt Service = NOI / Minimum DSCR
Max Annual Debt Service = $1,200,000 / 1.25 = $960,000

If the loan constant at 6.50% over 30 years is about 7.58%, then:

Max Loan by DSCR = $960,000 / 7.58% = about $12,665,000

Step 4: Pick the lowest result

The maximum loan is $12,000,000 because both LTV and debt yield are lower than DSCR. In this deal LTV and debt yield tie as the binding constraint, and DSCR has cushion to spare.

A second scenario: when rates rise, DSCR takes over

Keep the same property and lender limits, but reprice the loan at 7.50% over 25 years. Only the loan constant changes — it rises to about 8.87% — and only DSCR sizing reacts, because LTV and debt yield ignore loan terms entirely.

Max Loan by DSCR = $960,000 / 8.87% = about $10,823,000

Now DSCR is the lowest number, so it binds and proceeds drop to about $10,823,000 — roughly $1.2 million less on the same property, purely because rates moved. This is why DSCR is the constraint that most often tightens in a higher-rate market, a point covered in debt yield vs DSCR.

What changes the answer?

• Rates rise → the loan constant climbs and DSCR may become the binding constraint.
• Appraised value falls → LTV caps proceeds lower.
• The lender raises the debt-yield floor → debt yield may bind first.

Common mistakes in loan sizing

• Stopping at the first passing metric. A deal that clears LTV can still be capped by DSCR or debt yield.
• Ignoring the loan constant. Dividing NOI by DSCR gives debt service, not a loan amount.
• Assuming the answer is static. The binding constraint can switch as rates, value, or lender floors move.

Use the CRE loan sizing calculator to run the same comparison with your numbers, the DSCR calculator to stress the rate, or the max loan amount formula for the math behind each constraint.