Maximum loan amount calculator
A maximum loan calculator sizes the largest loan a property supports by testing loan-to-value, debt service coverage, and debt yield simultaneously, then returning the smallest of the three, which is how commercial lenders actually size debt.
Lenders use the lesser of price and appraised value
Loan supported by each test
- Loan-to-value (75%)
- $4,500,000
- Debt service coverage (1.25x) ← binding
- $4,222,718
- Debt yield (9.00%)
- $4,333,333
Resulting loan, tested
- Maximum loan
- $4,222,718
- Equity required
- $1,777,282
- Annual debt service
- $312,000
- Resulting LTV
- 70.4%
- Resulting DSCR
- 1.25x
- Resulting debt yield
- 9.24%
Debt service coverage binds. The deal is rate-constrained: proceeds would improve if rates fell, or if the lender granted an interest-only period.
Formula
Maximum Loan = the lesser of (Value × Max LTV), (DSCR-constrained loan), and (NOI / Min Debt Yield)How to read the result
Lenders do not size to a single constraint. They run all three tests and lend to whichever produces the smallest loan, so knowing which one binds tells you something real about the deal.
When debt service coverage binds, the deal is rate-constrained and proceeds improve if rates fall. When debt yield binds, the income simply does not support the loan at any interest rate, and only a lower price or higher net operating income changes the outcome. When loan-to-value binds, the property is producing plenty of income relative to its price and you are being capped by policy rather than by fundamentals.
Common questions
- Which constraint usually determines loan size?
- It moves with the rate environment. When interest rates are low, coverage tests are easy to pass and debt yield or loan-to-value tends to bind. When rates are high, debt service coverage usually becomes the binding constraint, which is what practitioners mean when they say a deal is debt-constrained rather than value-constrained.
- Why do lenders use debt yield at all?
- Debt yield is the only one of the three tests that cannot be flattered by cheap debt or an aggressive appraisal. Loan-to-value depends on a valuation and DSCR depends on the interest rate and amortization schedule, both of which can be engineered. Debt yield depends only on income and loan size.
- Does an interest-only period increase my loan amount?
- It can. Interest-only lowers annual debt service, which raises the DSCR at any given loan size and therefore relaxes the coverage constraint. It does not affect the loan-to-value or debt yield tests, so it only increases proceeds when DSCR is the binding constraint.
Terms used here
- Debt Service Coverage Ratio (DSCR)
The debt service coverage ratio is net operating income divided by total annual debt service, and it measures how many times a property's income covers its loan payments.
- Loan-to-Value (LTV)
Loan-to-value is the loan amount divided by the appraised value or purchase price of a property, expressed as a percentage, and it measures how much of the capital stack is debt.
- Debt Yield
Debt yield is net operating income divided by the total loan amount, measuring the unlevered return a lender would earn if it foreclosed and took the property back on day one.
- Net Operating Income (NOI)
Net operating income is a property's effective gross income minus all operating expenses, excluding debt service, capital expenditures, depreciation, and income taxes.
- Interest-Only Period
An interest-only period is a stretch at the start of a loan term during which the borrower pays only accrued interest and no principal, lowering debt service and raising early cash flow.
Other calculators
- Cap rate calculator
A cap rate calculator divides a property's annual net operating income by its purchase price to produce the capitalization rate, the unlevered yield the property generates at that price.
- NOI calculator
An NOI calculator computes net operating income by subtracting vacancy, credit loss, and operating expenses from gross potential rent and adding other income, producing the figure that drives cap rate, DSCR, and property value.
- DSCR calculator
A DSCR calculator divides net operating income by annual debt service to produce the debt service coverage ratio, which measures how many times a property's income covers its loan payments.
- Cash-on-cash calculator
A cash-on-cash return calculator divides annual pre-tax cash flow after debt service by total equity invested, measuring the yearly cash yield an investor actually receives on the money they put in.
This calculator is provided for informational purposes and is not investment, tax, or lending advice. Results depend entirely on the inputs you provide. Lenders re-underwrite net operating income on their own terms, so their figures will differ from these.