Max Loan Amount Formula for Commercial Real Estate

Borrowers who model commercial loan proceeds on a single formula consistently get term sheets that do not match their projections. The LTV looked clean. The DSCR cleared. The debt yield — the one metric nobody ran — came back short.

The maximum commercial real estate loan is not a single formula. It is the lowest result produced by several lender constraints applied to the same deal. A lender calculates a ceiling under each test and lends the smallest one.

The three core formulas are:

Max Loan by Debt Yield = NOI / Minimum Debt Yield
Max Loan by DSCR       = (NOI / Minimum DSCR) / Loan Constant
Max Loan by LTV        = Property Value x Maximum LTV

Max loan by debt yield

Debt yield sizing is the fastest income-based formula because it needs only two inputs. If NOI is $800,000 and the lender requires a 10% debt yield:

$800,000 / 10% = $8,000,000

There is no rate, amortization, or appraisal in this formula, which is why lenders — especially CMBS originators governed by CREFC standards — use it as a rate-proof backstop. To go deeper on the thresholds, see what is a good debt yield.

As-Is versus Stabilized debt yield

On bridge and construction loans, the debt yield is calculated twice. The As-Is Debt Yield applies the initial loan advance to current NOI. The Stabilized Debt Yield applies the full loan commitment — including any future funding holdbacks — to the projected stabilized NOI. Both numbers must clear the lender's floor.

If a loan has a $10M initial advance and a $2M renovation holdback, and the current NOI is $900,000:

Both numbers clear a 9% floor in this example. If the stabilized NOI came in lower — say $1,000,000 — the stabilized debt yield would be 8.3% and the total commitment would fail the floor. Lenders would then reduce the holdback or require the gap to be covered by equity reserves. Always run both calculations on any transitional deal.

Max loan by DSCR

DSCR sizing starts with the maximum annual debt service the income can support:

Max Annual Debt Service = NOI / Minimum DSCR

Then you convert that debt service into a loan balance using the loan constant — annual debt service divided by loan amount, which depends on the interest rate and amortization period.

Max Loan by DSCR = Max Annual Debt Service / Loan Constant

Because the loan constant moves with rate and term, DSCR sizing is the only one of the three formulas that changes when financing terms change. The table below shows approximate loan constants:

So $800,000 of NOI at a 1.25x minimum DSCR supports $640,000 of annual debt service. At a 6.5%, 30-year loan constant of 7.58%, that sizes to roughly $640,000 / 7.58% = $8,443,000. You can estimate the payment side with the commercial mortgage payment calculator.

Max loan by LTV

LTV sizing is value-based and the simplest of the three:

Property Value x Maximum LTV

A $20,000,000 property at 70% max LTV supports $14,000,000. Isolate this leverage test with the LTV calculator. According to FDIC commercial real estate lending standards and Federal Reserve supervisory guidelines, regulated lenders must observe maximum LTV ratios by property type regardless of what the income-based tests produce.

Putting all three together

Take a property with $1,000,000 NOI, a $13,000,000 value, a 6.5% rate over 30 years, and lender limits of 75% LTV, 1.25x DSCR, and a 9% debt yield.

The maximum loan is $9,750,000, because LTV is the lowest of the three. That lowest result is the binding constraint — the only limit that actually sets proceeds.

How lenders apply the NOI — and why your number is usually higher than theirs

All three formulas use NOI. The NOI lenders use is not the same number borrowers submit. Lenders apply a market vacancy factor of 5%–10%, deduct replacement reserves, and may stress-test rolling leases. If a property has an anchor tenant with a lease expiring in 18 months, the lender may deduct the lost rent for a 6-month dark-space scenario plus estimated re-tenanting costs before ever running the debt yield formula.

A borrower modeling $1,100,000 of pro forma NOI against a 9% debt yield floor sees a max loan of $12,222,222. If the lender underwrites the same property at $1,012,000 after adjustments, the max loan by debt yield drops to $11,244,444. That $978,000 gap appears on the term sheet as a loan shortfall with no explanation. It is almost always a NOI discrepancy, not a floor discrepancy. Ask the lender for their underwriting assumptions before the term sheet, not after. According to Fannie Mae's DUS program guidelines and Freddie Mac's seller/servicer standards, income verification and stress-testing requirements are explicit — the lender is following a defined process.

Which constraint usually binds

• LTV binds when value is low relative to income, or the leverage cap is conservative.
• DSCR binds when interest rates are high or amortization is short, because annual debt service rises and the loan constant climbs.
• Debt yield binds when a lender enforces a firm income floor, common on CMBS, bridge, and higher-risk loans.

Common mistakes

• Sizing on one formula. A strong LTV says nothing about whether income covers the debt. Run all three.
• Forgetting the loan constant. Dividing NOI by DSCR gives debt service, not a loan amount — you still have to divide by the loan constant.
• Using gross income instead of NOI. Every formula starts with net operating income after vacancy, expenses, and reserves.

Run the three formulas side by side with the max loan amount calculator, or walk a full numeric deal in the CRE loan sizing example.

Frequently asked questions

What is the difference between the As-Is and Stabilized max loan by debt yield? As-Is is calculated on the initial loan advance against current NOI. Stabilized is calculated on the total loan commitment — including future funding — against projected stabilized NOI. On transitional deals, lenders underwrite both and require both to clear the floor. A deal where only the As-Is passes effectively means the lender will cap the total commitment at a lower level or require equity reserves against the holdback.

If all three constraints produce different maximums, does the lender explain which one bound the proceeds? Sometimes, but not always. Term sheets often just state the approved loan amount without attribution. If the proceeds are lower than expected, ask the lender specifically which metric was the binding constraint and what NOI they underwrote. That conversation tells you whether the gap is recoverable through a NOI argument or whether it requires bringing more equity.

Does the DSCR formula change if the loan is interest-only? Yes, significantly. An interest-only loan has no amortization, so the loan constant equals the interest rate alone (e.g., 7.0% rate = 7.0% loan constant). This makes the DSCR-supported loan amount substantially larger than on an amortizing loan. That is why debt yield becomes more critical on interest-only bridge loans — it prevents borrowers from using IO structures to circumvent the income cushion test.

How does the Mortgage Bankers Association define standard underwriting parameters? The MBA publishes periodic surveys of commercial and multifamily mortgage origination conditions, including typical LTV, DSCR, and debt yield requirements by lender type. Those benchmarks are useful for calibrating your loan request against what the market is currently accepting, though actual lender requirements vary by deal.

What is the quickest way to check whether my deal is near a constraint? Use the reverse formulas before building a full model. Max Loan by DY = NOI ÷ Minimum DY tells you your income floor in 10 seconds. Max Loan by LTV = Value × Max LTV tells you your collateral ceiling. If those two numbers are close to each other and close to your target loan, you are well-positioned. If either is materially below your ask, you have found your problem before a lender does. The max loan amount calculator runs all three simultaneously.