Three lenders, three loan amounts: reconcile the underwriting

When three lenders return three different loan amounts on the same property, start by asking what each one underwrote. A larger quote may reflect a different cash-flow figure, a longer amortization, a temporary interest-only payment, or a value assumption that remains unapproved. Comparing the three headline amounts without their inputs conceals the decision.

The OCC handbook’s sizing discussion treats DSCR and debt yield as different measures and considers them alongside value. It does not establish a universal minimum for every commercial borrower. All three hypothetical proposals below use assumptions chosen to expose how those measures interact.

Separate the common property record from lender adjustments

Assume a property purchase price and agreed modeling value of $6 million. The sponsor presents $450,000 of annual property cash flow. Before comparing offers, request a bridge from that number to each lender’s accepted numerator.

Lender A accepts $450,000. Lender B deducts $18,000 for its tax estimate and $12,000 for reserves, accepting $420,000. Lender C uses those adjustments plus $30,000 for an approaching lease rollover, accepting $390,000. These deductions are illustrative lender choices, not statements about what should be deducted in every NOI calculation.

The sponsor should identify whether the disagreement is factual, definitional or judgmental. A tax bill proving an expense was already included could resolve double counting. A different required reserve may be a program rule. A rollover haircut may remain a credit judgment even after the lease is verified. Each type calls for a different response.

Compute each ceiling on the same footing

For a level-payment loan, the annual debt constant is twelve times the monthly payment on one dollar of principal. Monthly rate equals annual note rate divided by twelve, and the payment count equals amortization years times twelve. At zero interest, the annual constant is one divided by amortization years.

The modeled limits are:

• LTV limit = accepted value × maximum LTV.
• DSCR limit = accepted annual cash flow ÷ required DSCR ÷ annual debt constant.
• Debt-yield limit = accepted annual cash flow ÷ minimum debt yield.

The permitted amount in this simplified exhibit is the smallest applicable limit. For an interest-only loan, the annual rate is the cash-pay debt constant in this example. A real lender may test an amortizing or stressed payment despite an initial interest-only period; ask which denominator actually governs sizing.

These are modeled inputs, not current market quotations. Rounding the debt constant too early can change the displayed loan amount; keep full precision until presenting the result.

The binding limit changes between proposals

Lender B accepts less cash flow than A yet offers more debt, because its longer amortization, lower rate and lower DSCR requirement produce a looser payment constraint. Its final limit is value. Lender C’s interest-only structure creates the appearance of easier payment coverage, but its debt-yield requirement governs the amount.

The difference between A and B is approximately $141,122. It is not automatically a $141,122 economic benefit. Compare origination costs, funded reserves, prepayment provisions, recourse and future payment changes before choosing. An interest-only loan also leaves more principal to address at maturity than an otherwise comparable amortizing structure.

Negotiate the constraint that actually matters

Suppose A reduces its interest rate enough to make the DSCR ceiling exceed $3.9 million. The LTV test then caps further proceeds. Continuing to negotiate rate solely to increase proceeds would not solve the remaining value constraint, though it could still reduce borrowing cost.

For C, lowering the note rate does not change a debt-yield ceiling. A legitimate increase in accepted income or a different agreed debt-yield requirement would. Raising the appraisal assumption cannot overcome a binding debt-yield test either.

Use a one-variable change log. Record the original input, proposed change, evidence supporting it and revised binding limit. This makes it possible to distinguish an actual improvement from a proposal that simultaneously changed three assumptions and quietly added a reserve.

Translate maximum debt into equity required

If total acquisition and closing uses are $6.42 million, these modeled maximums imply gross equity contributions of $2,661,122 for A, $2,520,000 for B and $2,874,545 for C. These calculations assume the full stated loan funds those uses. Future advances, withheld fees or restricted cash would change the closing equity need.

Require a separate funded-proceeds schedule before treating the maximum amount as cash available. Also keep sponsor liquidity outside the purchase equity model where the loan requires it. A lender’s minimum liquidity test is not satisfied merely because the sources-and-uses spreadsheet balances.

The most useful comparison meeting starts with three questions: what cash flow did each lender accept, which test binds, and what cash will actually arrive when needed? Those questions turn inconsistent headline quotes into a financing decision that can be explained and checked.