Which metric does the lender use to determine the maximum loan amount based on cash flow?

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The key idea is to assess whether the property's cash flow can cover the debt payments. The metric that directly measures this is the debt service coverage ratio, which compares net operating income to annual debt service. A DSCR above 1 indicates the cash flow can pay the debt service, and a higher DSCR means more cushion and often a larger loan can be supported. Lenders typically set a minimum DSCR (for example, 1.25) and determine the maximum loan amount by figuring how much debt service the available cash flow can sustain at that minimum ratio. For instance, with a given net operating income, the maximum annual debt service is NOI divided by the minimum DSCR, which then translates into the largest loan size the lender would consider. Other ratios don’t tie cash flow to debt service as directly: debt ratio and debt-to-income ratio are more about proportions of assets or personal income, not the property’s ability to service debt, and debt servicing ratio is a less standard term in sizing loans.