DSCR vs LTV: Cash Flow Coverage vs Collateral Leverage

DSCR and LTV are two of the first ratios lenders check on a commercial mortgage, but they measure different risks.

DSCR = NOI / Annual Debt Service
LTV = Loan Amount / Property Value

DSCR is about payment coverage. LTV is about collateral leverage.

What DSCR tells the lender

DSCR shows whether the property income can pay the mortgage. A 1.25x DSCR means the property produces $1.25 of NOI for every $1.00 of annual debt service.

Because DSCR uses debt service, it changes when interest rate, amortization, or interest-only structure changes.

Use the DSCR calculator to test payment coverage and maximum loan amount by coverage ratio.

What LTV tells the lender

LTV shows how much of the property value is financed with debt. A 70% LTV loan means the lender is advancing 70 cents for each dollar of underwritten value.

Because LTV uses value, it changes with appraisal, purchase price, or lender valuation basis.

Use the LTV calculator to test leverage and equity required.

Why both can bind

Imagine a property worth $10,000,000 with a lender max LTV of 75%. LTV supports a $7,500,000 loan. If NOI and loan terms support only $6,900,000 at the required DSCR, then DSCR binds and the lender will not advance the full 75% LTV.

Now flip the scenario. If DSCR supports $8,000,000 but the LTV cap supports $7,500,000, then LTV binds.

Where debt yield fits

Debt yield is the third test. It compares NOI to loan amount and ignores both appraised value and loan payment terms.

That matters because a deal can pass DSCR and LTV but still fail debt yield, especially with CMBS or lenders that require a firm income floor.

Best workflow

Run all three tests together:

1. Max loan by LTV.
2. Max loan by DSCR.
3. Max loan by debt yield.

The smallest result is the binding constraint. The CRE loan sizing calculator does this side by side.

DSCR tells you whether the income pays the debt. LTV tells you whether the loan is reasonable against value. A good loan request needs both.