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Higher DSCR standards are pushing down payments in CRE to 25% to 30%
HousingWire says DSCR requirements of 1.20 to 1.25 can cut available loan proceeds, forcing many deals to use 25% to 30% equity instead of around 20%.
HousingWire argues that commercial real estate buyers are increasingly finding that the traditional starting point of putting about 20% down no longer fits the current financing math. Across many commercial asset classes, the outlet says 25% to 30% equity is becoming more common as higher interest rates raise debt service costs.
The piece attributes the shift less to banks becoming more conservative and more to the economics of debt changing. It says many lenders focus first on whether a property’s income can safely support mortgage payments, with the Debt Service Coverage Ratio, or DSCR, acting as a key driver rather than loan-to-value alone.
HousingWire notes that DSCR requirements are often in the 1.20 to 1.25 range, meaning net operating income must exceed annual debt payments by 20% to 25%. The outlet describes how a higher mortgage payment can reduce the loan amount even if NOI stays unchanged, shrinking how much buyers can finance.
To illustrate, HousingWire cites an example of a $2,000,000 apartment community producing $160,000 in annual NOI. With a 1.25 DSCR, it says annual debt service would be limited to about $128,000, and it contrasts this with past underwriting when commercial interest rates hovered around 4% to 4.25% and financing near an 80% loan-to-value level was more feasible.