Three numbers a lender actually underwrites
Long before a term sheet exists, a multifamily loan lives or dies on DSCR, LTV, and the debt yield. Here is how each one really gets read.
01DSCR: the number that sets your loan
Debt-service coverage ratio is net operating income divided by annual debt service. A lender does not lend against a price; it lends against the income’s ability to carry the payment, with room to spare.
Leverage is not free money. It is a second partner, and it holds the first claim.Finance & Capital
| Input | Value |
|---|---|
| Net operating income | $134,000 |
| Required DSCR | 1.25× |
| Max annual debt service | $107,200 |
| Indicative loan amount | ~$1.62M |
02LTV vs. the appraisal you do not control
Loan-to-value caps the other side of the deal. But the “value” is the appraised value, not your contract price, and the appraisal is a third party you do not get to coach.
When DSCR and LTV disagree, the lender takes the lower loan. Know which constraint binds before you sign, or you will be wiring the difference at the table.
03Debt yield: the lender's quiet backstop
Debt yield, NOI divided by loan amount, is the number lenders fall back on when rates and cap rates stop making sense. It strips out the rate entirely and asks one thing: if we foreclosed tomorrow, what does the income return on our dollars?
Placeholder section, structure test.
I sit on the same side of the table as the lender before they do, so the term sheet holds no surprises.
Read the next one first.
Field notes from inside the deal, investment, finance, and the law that decides a closing. No noise.
One email when something worth reading goes up. Unsubscribe anytime.