How Lenders Size an Apartment Loan: LTV, DSCR and Debt Yield Together
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How much you can borrow on an apartment building is the lowest of three numbers a lender calculates: the property value times the maximum loan-to-value (LTV), the largest loan whose payment the building's income covers at the minimum debt service coverage ratio (DSCR), and the income divided by the minimum debt yield. On an example $10,000,000 building with $650,000 of underwritten NOI, those tests give $7,500,000, about $6,856,000 and about $7,222,000. The lender offers the lowest, about $6,856,000, so DSCR is the "binding" test and the sponsor raises the rest as equity.
This post is part of our guide to real estate syndication. It shows the three tests side by side and how each one changes the equity you raise. Figures are as of November 2026; the rate and limits in the example are illustrations, not quotes.
The three tests
| Test | What it limits | Formula for the maximum loan |
|---|---|---|
| Loan-to-value (LTV) | The loan as a share of the property's value | Value × maximum LTV |
| Debt service coverage ratio (DSCR) | The payment as a share of NOI | (NOI ÷ minimum DSCR) ÷ loan constant |
| Debt yield | NOI as a share of the loan | NOI ÷ minimum debt yield |
The loan constant is the yearly payment per dollar borrowed. On a 30 year schedule at 6.5% it is about 7.58%. On interest-only payments it equals the rate, but many lenders size on an amortizing payment anyway. See interest-only periods.
Published agency programs list their limits in term sheets: Freddie Mac's small-loan term sheet, for example, lists a minimum amortizing DCR of 1.25x. Debt yield minimums are more common with bank, CMBS and bridge lenders than with agency loans. Ask each lender for all three limits in writing. For more on each test, see DSCR loans, debt yield and loan-to-cost vs loan-to-value.
A worked example
A sponsor is buying a building for $10,000,000. The lender's appraisal agrees with the price, and the lender underwrites NOI at $650,000. The lender's limits are 75% LTV, 1.25x DSCR on a 30 year amortizing payment at 6.5%, and a 9.0% debt yield. The figures are an example.
- LTV test: $10,000,000 × 75% = $7,500,000.
- DSCR test: $650,000 ÷ 1.25 = $520,000 of maximum yearly payment. $520,000 ÷ 7.585% = about $6,856,000.
- Debt yield test: $650,000 ÷ 9.0% = about $7,222,000.
- Loan offered: the lowest, about $6,856,000, or about 68.6% of price.
The sponsor had planned on a 75% loan. The DSCR test cut about $644,000 from it, and that amount, plus closing costs and reserves, now has to come from investors. See sources and uses for the full equity number.
What can you change when DSCR binds?
- A lower rate. A rate buydown, a shorter term or a different lender lowers the loan constant. At 6.0% (constant about 7.19%), the same NOI supports about $7,227,000.
- A longer amortization. A longer schedule lowers the constant. Not every program offers it.
- Interest-only sizing. Some lenders size partly on IO payments. This raises the loan but also the risk when IO ends.
- A different structure. Seller financing or an assumed loan may carry a lower rate; see assuming the seller's loan.
- More equity. Often the honest answer: raise more, or pay less for the building.
What you cannot change is the lender's NOI by arguing for the pro forma. Lenders underwrite what the building earns, usually with taxes reset to the price and reserves deducted; see how to calculate cap rate for the same adjustments.
Why do the three tests disagree?
Each protects the lender from a different risk:
- LTV protects against a fall in value: there must be enough equity below the loan to absorb it.
- DSCR protects against a fall in income: the building must still pay the loan if NOI drops.
- Debt yield protects against both without depending on the rate or the appraisal: it asks what the lender would earn on its money if it took the building back.
When rates are high, the DSCR test bites first because the payment is large. When cap rates are low and prices high, LTV can bite first. Because the binding test changes with the market, size every deal on all three.
When are the tests run?
The lender sizes the loan at application with a preliminary NOI, then again after its appraisal and third-party reports, close to closing. The loan can shrink between those two dates if the appraisal comes in low or the lender's NOI falls. This is why many sponsors raise a little more than the plan needs; see apartment loan timeline and third-party reports.
How DoorRaise fits in
DoorRaise does not lend or arrange loans. It helps sponsors raise the equity the loan leaves, from their friends and followers, for apartment buildings with 5 or more units. A sponsor enters the price, the loan and a few other numbers, and DoorRaise computes how much to raise and the projections on the deal page. DoorRaise forms the deal's LLC, prepares the offering documents, files Form D and verifies every investor's accreditation, in 506(b) and 506(c) deals. Investors fund by wire into escrow at Enterprise Bank & Trust. DoorRaise charges two flat fees: $1,500 to set up (non-refundable) and $5,000 a year for administration, the first year paid at closing from the money raised and only if the deal closes.
Check your loan on all three tests with the free cap rate and DSCR calculator, then start your deal.
FAQ
How much can I borrow on an apartment building?
The lowest of three amounts: value times the lender's maximum LTV, the loan whose payment NOI covers at the minimum DSCR, and NOI divided by the minimum debt yield. Ask the lender for all three limits.
What is a binding constraint in loan sizing?
It is the test that produces the lowest loan amount. That test sets the loan, and the other two have room to spare.
Why is my loan smaller than 75% of the price?
Usually because the DSCR or debt yield test gives a smaller number than the LTV test, or because the lender's NOI or appraisal is lower than yours.
Do lenders use the purchase price or the appraisal for LTV?
Many use the lower of the two on a purchase. Ask your lender which, in writing.
Does a lower interest rate increase the loan amount?
Yes, when DSCR is the binding test. A lower rate lowers the loan constant, so the same NOI supports a larger loan. It does not help when LTV or debt yield binds.
Sources
- Freddie Mac Multifamily, Optigo Conventional Small term sheet
- Fannie Mae Multifamily Selling and Servicing Guide, Section 905.02 Underwritten DSCR
- Fannie Mae Multifamily, fixed-rate mortgage loans
This article is general information, not legal, tax or investment advice. The example loan, rate and limits are illustrative; lenders set their own terms. DoorRaise is not a lender, law firm, broker-dealer, investment adviser or funding portal.