Commercial Mortgage Ratios Explained For Business Loan Underwriting


Underwriting commercial real estate loans, there are three main ratios to us to analyze the quality of a financing request.

Loan-To-Value (LTV) Ratio

Debt Ratio

Debt Service Coverage Ratio (DSCR)

The first ratio is the Loan-To-Value Ratio:

The (LTV) equals the amount of the commercial mortgage divided by the market value of the property as determined by a commercial appraisal.

The Loan-To-Value Ratios for commercial real estate loans are capped at 75% or 80%.

The Debt Ratio:

Is the amount of personal monthly debt a borrower has divided by personal monthly income. In commercial lending, rarely does a commercial lender analyze the borrowers personal debt-to-income ratio, rather the underwriter focuses more on the property's income and expenses.

Debt Service Coverage Ratio (DSCR):

The final ratio used in underwriting a commercial mortgage loan request is the Debt Service Coverage Ratio (DSCR). The DSCR equals annual net operating income divided by annual debt service. Net operating income is the gross rental income minus expenses. Most commercial lenders require a minimum DSCR of 1.25x.

Winston Rowe & Associates is a commercial real estate consulting and advisory firm providing financing solutions nationwide through their strategic relationships.

You can contact them at 248-246-2243 or visit them online at

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