Question 1

What is the minimum DSCR required for a commercial real estate loan?

Accepted Answer

Most commercial banks and debt funds require a minimum DSCR of 1.20x to 1.25x. Multifamily agency debt (Fannie Mae/Freddie Mac) typically qualifies at 1.20x to 1.25x, while unanchored retail, hospitality, or office assets may require 1.30x to 1.35x.

Question 2

How do commercial lenders size maximum loan amount using DSCR?

Accepted Answer

Lenders divide annual Net Operating Income (NOI) by the target DSCR to determine maximum allowable annual debt service. The maximum loan proceeds are then calculated using the note interest rate and amortization schedule (typically 20 to 30 years).

Question 3

What is the difference between DSCR and Debt Yield in CRE underwriting?

Accepted Answer

DSCR measures annual cash flow coverage against debt service (NOI / Annual Debt Service), while Debt Yield measures lender return independent of interest rate (NOI / Loan Amount). Commercial lenders typically require a minimum 9.5% to 10.5% debt yield.

Commercial DSCR Loan Underwriting Sizer

Property Income & Loan Terms

Loan Proceeds & Lender Underwriting