Find out which test is actually holding your proceeds down
Three constraints compete for the loan amount and only one of them binds. Knowing which changes what you negotiate — and it is usually not the one borrowers arrive ready to argue about.
Run them together, because the tightest one wins
Checking coverage alone tells you whether a loan you already assumed would work. It does not tell you the largest loan available, which is a different question and the one that decides your equity cheque.
- DSCR — sensitive to everythingRate, amortization and any interest-only period all move it, which makes it the most negotiable of the three and the least likely to be the real constraint.
- Debt yield — sensitive to almost nothingNOI over the loan. It ignores the payment, so no amount of term negotiation touches it. When this binds, the only lever is the loan amount itself.
- LTV and break-even, as contextWhere the proceeds sit against value, and how full the building has to stay to service the result.
Debt
DSCR
1.46x
Lender floor 1.25x
Debt yield
11.11%
Lender floor 10%
Break-even occupancy
67.4%
20.5 pts of cushion
LTV
65.0%
$10,890,000 loan
- Monthly debt service
- $68,832
- Annual debt service
- $825,987
- Rate / amortization
- 6.50% / 30 yr
- Balance at year 5
- $10,194,235
Debt yield usually binds before DSCR does, and a longer amortization cannot improve it.
Why debt yield catches people out
A borrower whose constraint is coverage can improve it: stretch the amortization, take an interest-only period, push on the rate. Every one of those moves the payment, and DSCR is a function of the payment.
Debt yield is not. It is NOI divided by the loan amount, and the payment never appears in it. Lenders adopted it after 2008 for exactly that reason — it answers what they would earn owning the building, which is a question that structure cannot flatter.
So if debt yield is what is binding, an hour spent negotiating amortization is an hour wasted, and the real conversation is about proceeds or about the income. Finding that out before the call is most of the value of running all four together — and you can check it in about thirty seconds.
Interest-only is a loan that gets harder later
It flatters coverage now and leaves you with a payment that rises on unchanged income. Worth taking, often — worth modelling first, always.
- The payment goes up when it endsThe same principal amortizes over a shorter remaining life, so the post-IO payment is higher than it would have been without the IO period at all.
- Coverage falls on the same incomeA deal that cleared comfortably while interest-only can sit close to the floor the month amortization starts. That month is worth looking at before you sign.
Debt — 24 months interest-only
DSCR, IO period
1.71x
Interest only, months 1–24
DSCR, after IO
1.43x
Amortizing, months 25+
Debt yield
11.11%
Unchanged — IO does not move it
LTV
65.0%
$10,890,000 loan
- Payment, IO period
- $58,988
- Payment, amortizing
- $70,460
- Rate / amortization
- 6.50% / 30 yr
- Balance at year 5
- $10,435,324
The payment RISES when interest-only ends — $58,988 to $70,460 — because the same principal now amortizes over a shorter remaining life.
Questions people ask
What determines the largest loan a property supports?
Whichever lender test binds first. Three usually compete: loan-to-value against the appraisal, debt service coverage against the NOI, and debt yield against the loan itself. The proceeds you get are set by the tightest of the three, not by the one you happened to check.
Which test usually binds?
Debt yield, more often than borrowers expect. It ignores the payment entirely, so unlike DSCR it cannot be improved by a longer amortization or an interest-only period. If debt yield is your constraint, negotiating term does nothing and you are arguing about the wrong variable.
What are typical lender floors?
Conventionally around 1.25x DSCR and roughly 10% debt yield, though both move with asset class, sponsor and the credit market of the moment. Treat them as the shape of the conversation rather than as numbers to build a model on — your lender's actual thresholds are the ones that matter.
Does interest-only help?
It helps coverage during the interest-only period and does nothing for debt yield. It is also worth modelling what happens when it ends: the payment rises, because the same principal now amortizes over a shorter remaining life, and coverage drops on unchanged income.
Where does the NOI come from?
The rent roll, built from your leases. That matters here more than almost anywhere else, because a lender is going to test the income themselves, and a coverage ratio computed on an NOI you typed in is a number you cannot defend when they do.
Where this goes next
How debt modeling works
The machinery behind these four tests.
DSCR calculator
Coverage and the max loan it supports. Free, no signup.
Debt yield calculator
The test that usually binds first.
Brief a lender
What to send once you know the number.
CRE loan terms
Amortization, interest-only and the balloon.
What is a good DSCR?
Benchmarks, and what lenders actually require.
Find your binding constraint before the call.
Build the deal from your documents and put your loan terms against it. DSCR, debt yield, break-even occupancy and LTV, all from the same NOI. Free plan, no credit card.