How does a DSCR calculator size a multifamily loan?

What DSCR is

DSCR stands for debt service coverage ratio: NOI divided by annual debt service. Annual debt service is just the standard mortgage payment, annualized. Monthly payment equals L times r(1+r)^n divided by (1+r)^n minus 1, where L is the loan amount, r is the monthly interest rate, and n is the number of amortization months. Multiply that monthly payment by 12 to get annual debt service.

Lenders require a cushion above 1.00x because NOI is not a guaranteed number. It has to absorb vacancy swings, expense surprises, and slow-paying tenants before the loan payment is ever at risk. A DSCR of exactly 1.00x means every dollar of NOI is already spoken for; there is no room for anything to go wrong.

The common minimum on stabilized multifamily is a range, not a fixed number: roughly 1.20x to 1.25x, and it moves with the lender, the loan program, the market, and the quality of the asset. Bridge and value-add loans can be underwritten lower, and some programs sit higher. Treat any single quoted figure as a starting point to confirm with the actual lender, not a universal constant.

DSCR at a given loan, worked

Take a $2,000,000 loan at 6.5 percent, amortized over 30 years with monthly, fully amortizing payments. Run it against the same 24-unit property's verified NOI of $168,000:

1.11x is below a typical 1.20x to 1.25x minimum, so the lender will not write $2.0 million against this NOI. Something has to give: a smaller loan, more equity, or a longer amortization. The next section works out exactly how much smaller.

How the max loan is sized from a DSCR target

Instead of testing a loan you already picked, invert the formula: max annual debt service equals NOI divided by the target DSCR. Convert that payment to a loan using the loan constant, the annual debt service owed per dollar of loan at a given rate and amortization. At 6.5 percent over 30 years the loan constant is 7.5848 percent (a monthly payment factor of 0.00632068). Max loan equals max annual debt service divided by the loan constant. This is exactly what RTOM's Debt Sizer runs under the hood: it inverts the standard amortization formula rather than solving it forward.

At a 1.25x target: max annual debt service is 168,000 / 1.25 = $134,400, or $11,200 a month. Dividing by the 7.5848 percent loan constant sizes a loan of $1,771,961, call it $1.77M. Check it: annual debt service on that loan is $134,400, and 168,000 / 134,400 is exactly 1.25x. Against the $2.8M value, that loan is a 63.3 percent LTV.

A 0.05x drop in the DSCR target, from 1.25x down to 1.20x, moves proceeds by about $73,800 on this NOI alone. That is why the target a lender quotes matters as much as the rate.

DSCR is usually one of two constraints. Lenders also cap the loan-to-value ratio, and the loan you actually get is the lesser of the DSCR-sized loan and the LTV cap. RTOM's Debt Sizer computes both constraints and tells you which one binds on your numbers. An interest-only period raises DSCR on the same loan for as long as the IO term lasts, since there is no principal in the payment, but the underlying loan amount does not change.

The wedge: garbage NOI in, garbage loan out

Run the same 1.25x target and the same 6.5 percent, 30-year assumptions against the seller's reported NOI instead of the verified figure. The reported, proforma-inflated NOI of $177,000 sizes to $1,866,888. The verified $168,000 sizes to $1,771,961.

A $9,000 NOI inflation becomes roughly $95,000 of loan the property's real cash flow cannot service. One of two things happens next: the lender's underwriter strips the inflated NOI back out during diligence and the deal re-trades at a lower loan amount, or worse, it closes at the higher number and the property runs below covenant from day one. Verified T-12 NOI, not the seller's package, is what a lender actually underwrites, which is why verifying the T-12 has to happen before the loan gets sized, not after.