How much can you borrow on a multifamily deal?
Multifamily loan sizing that shows which ratio sets the loan
A multifamily loan is sized as the smallest amount allowed by each of the lender's tests: loan-to-cost, loan-to-value, debt service coverage ratio (DSCR) and debt yield, plus any stated cap. Run all of them; the one that produces the lowest loan is the binding constraint, and that's how much you can borrow.
The four multifamily loan sizing tests (and a stated cap)
- LTC: loan ÷ total cost.
- LTV: loan ÷ stabilized value at the exit cap.
- DSCR: NOI ÷ annual debt service.
- Debt yield: NOI ÷ loan.
- Stated amount: a loan amount you enter.
The smallest loan wins.
How to calculate multifamily DSCR loan sizing
- Max annual debt service = NOI ÷ minimum DSCR.
- Max loan = max debt service ÷ the annual loan constant (debt service per $1 of loan, set by rate and amortization).
Interest-only and amortizing loans have different constants, so the same NOI supports a different loan.
Debt yield: the multifamily test that ignores the rate
Max loan = NOI ÷ minimum debt yield. It doesn't move when rates move, which is why it can bind when rates fall.
The binding constraint, named
CRE Build sizes the loan as the smallest of LTC, LTV, DSCR, debt yield and any stated amount, and names the binding constraint. You see whether the loan is capped at the LTV, DSCR or debt-yield limit, or by cost or your stated amount.
Save a model at any point, compare any two versions line by line, and restore an earlier one. Handy when a lender asks how the sizing moved.
Rates in the multifamily loan model
Treasury forwards come from the par curve, and the SOFR path is labeled derived when no vendor feed is set. Details are on the methodology page.
Extensions and takeouts
Extensions are modeled as If needed, Disclosed or Exercised. Takeouts are modeled as Cash-out or Takeout only.
Multifamily acquisition or development
For multifamily acquisition underwriting, the loan tests run on the in-place and stabilized numbers. For development, construction interest and fees are solved together with total cost, with no circular references. See development sources and uses.
Take the multifamily loan to your lender
Share a private copy with your lender's email address. Your lender works in their own copy with a free account and sends changes back as a proposal. Proposals split into terms and disputed underwriting, priced separately and together, and you accept the terms, accept both, or decline. Your model never changes unless you accept. More on lender review.
If the lender wants a workbook: export any version to Excel as a snapshot of CRE Build's figures; row totals are SUM formulas, and the model itself recalculates in CRE Build, not in the workbook.
Worked example (illustrative numbers, not a real deal)
Example deal with invented round numbers.
Inputs: total cost $20,000,000 · stabilized value $22,000,000 · NOI $1,200,000 · lender minimums: LTC 65%, LTV 70%, DSCR 1.25x, debt yield 9.0% · annual loan constant 8.0% (example rate plus amortization).
- Test
- LTC 65%
- Calculation
- 65% × $20,000,000
- Max loan
- $13,000,000
- Test
- LTV 70%
- Calculation
- 70% × $22,000,000
- Max loan
- $15,400,000
- Test
- DSCR 1.25x
- Calculation
- $1,200,000 ÷ 1.25 = $960,000 max debt service; $960,000 ÷ 8.0%
- Max loan
- $12,000,000
- Test
- Debt yield 9.0%
- Calculation
- $1,200,000 ÷ 9.0%
- Max loan
- $13,333,333
| Test | Calculation | Max loan |
|---|---|---|
| LTC 65% | 65% × $20,000,000 | $13,000,000 |
| LTV 70% | 70% × $22,000,000 | $15,400,000 |
| DSCR 1.25x | $1,200,000 ÷ 1.25 = $960,000 max debt service; $960,000 ÷ 8.0% | $12,000,000 |
| Debt yield 9.0% | $1,200,000 ÷ 9.0% | $13,333,333 |
- Smallest result: $12,000,000, so DSCR is the binding constraint.
- Check: $12,000,000 × 8.0% = $960,000 of debt service; $1,200,000 ÷ $960,000 = 1.25x.
- What if it's interest-only at a 6.0% constant? $960,000 ÷ 6.0% = $16,000,000 from DSCR, so the binding constraint moves to LTC at $13,000,000.
Questions
How is a multifamily loan sized?
As the smallest amount allowed by loan-to-cost, loan-to-value, DSCR, debt yield and any stated cap. The test that gives the lowest loan is the binding constraint.
How do you calculate DSCR for a multifamily property?
Divide net operating income by annual debt service. A property with $1,200,000 of NOI and $960,000 of debt service has a DSCR of 1.25x.
How do you get the max loan from DSCR?
Divide NOI by the minimum DSCR to get the most debt service allowed, then divide by the annual loan constant. At $1,200,000 NOI, 1.25x and an 8.0% constant, that's $12,000,000.
What is debt yield?
Debt yield is net operating income divided by the loan amount. A 9.0% minimum on $1,200,000 of NOI caps the loan at about $13.3 million.
Does CRE Build handle construction loans?
Yes. On developments, construction interest and fees are solved together with total cost, and extensions and takeouts are modeled.
What does it cost?
Loan sizing is part of CRE Build. Lenders you share with review free. Pro is free.
Size your next multifamily loan
Start free (no card required). Or try the feasibility model first.