Reviewed by Craig Hoebing, AZ Commercial Mortgage Banker CMB-1047342 · Updated October 2026
Debt service coverage ratio means net operating income divided by the loan's annual payment. If the property produces $125,000 of NOI and the payment for the year is $100,000, the ratio is 1.25x. NOI is income after operating expenses and before debt. The payment is principal and interest, or interest only when that is the payment in force. A result of 1.00x means income equals the payment, with nothing left for a surprise. Above 1.00x means there is a cushion. How thick a cushion counts as 'good' is the argument. This page will not end the argument with a house rule.
Capital sources publish floors, and the floors are not identical. Fannie Mae's Multifamily Small Mortgage Loan term sheet lists a minimum DSCR of 1.25x, alongside a maximum LTV of 80 percent, for loans up to $9 million on properties with five or more units. Freddie Mac's Conventional Small term sheet shows a minimum amortizing DCR of 1.25x on the grid it publishes for that product. Those sentences are what the enterprises printed. They are not a statement that 1.25x gets a loan approved, and they are not the test for every office building, every retail center, or every bridge loan. A bridge lender looking at a half-empty building may not use a stabilized coverage test at all.
Why the same property can show two ratios
Change the payment and you change the ratio. A longer amortization lowers the annual payment, so DSCR rises and a lender may advance more, until a loan-to-value cap or a debt-yield cap stops it. An interest-only payment is smaller than an amortizing payment, so the ratio looks better. Ask which payment the lender puts in the denominator. Sizing all three limits from numbers you type is what the rates and loan calculator does. The DSCR calculator does the coverage and debt-yield arithmetic alone. Any target you type is your test. The screen says so.
Debt yield is a different fraction: NOI divided by the loan amount. It ignores the interest rate. Lenders use it so a low coupon cannot puff up the proceeds. A property can clear a DSCR floor and fail a debt-yield floor, or the reverse. The glossary defines both terms on the commercial mortgage glossary. Neither definition is a minimum.
What this office will and will not say
We will not say that 1.20x is enough, or that 1.25x is safe, or that 1.40x is what Arizona lenders want this quarter. Those sentences go stale and they pretend we are the credit committee. We will say: bring the trailing income, the rent roll, and the payment you are testing, and we will ask lenders what they actually require for that asset. For Arizona apartments of five or more units and other commercial income property, the arrangement page is Arizona commercial DSCR. The longer statewide reading of coverage, leverage, and debt yield is Arizona commercial mortgage.
A typed example on a calculator is not a quote. A published agency floor is not a quote. Craig Hoebing arranges the loan from Scottsdale, Arizona CMB-1047342, NMLS 1445066. Capital Market Funds is not a Fannie Mae DUS lender, not an Optigo lender, and not the party that sets the ratio.
Questions
- Is 1.25x a good DSCR for every commercial property?
- No. 1.25x is a minimum on Fannie Mae's published small-loan term sheet and on Freddie Mac's Conventional Small grid. Other lenders use other tests. Clearing a printed floor is not an approval.
- Does Capital Market Funds publish a required DSCR?
- No. The firm arranges financing and is not the lender. The calculator uses the ratio you type. It does not store a company minimum.
- Why does interest-only make DSCR look better?
- The payment is smaller because principal is not included, so income divided by that payment is a higher ratio. Ask whether the lender also tests the amortizing payment that starts later.
- Where should an Arizona commercial owner go after this explanation?
- Use the DSCR calculator for arithmetic, the rates calculator to size a loan from several limits, and the Arizona commercial DSCR page if you want the loan arranged on five-or-more-unit or other commercial property.