1.20 for a well-leased residential building
1.25 to 1.35 for a commercial building
Sometimes higher when leases are short
The calculation
Net income is divided by annual loan payments. The result must clear a threshold.
Common thresholds
- 1.20 for a well-leased residential building
- 1.25 to 1.35 for a commercial building
- Sometimes higher when leases are short
What you can change
A longer amortization lowers the payment. A larger down payment reduces the loan.
A worked example
A building generates eighty thousand dollars in net income. The loan requires sixty thousand a year.
The ratio comes to 1.33. That clears the usual 1.25 threshold.
What makes the calculation fail
- A rate increase between offer and funding
- A unit that becomes vacant during review
- An expense left out of your initial figures
- A municipal tax reassessed upward
The qualifying rate
Some lenders calculate at a rate above yours. That margin guards against future increases.
Improving the ratio before applying
- Re-rent a vacant unit
- Document an expense reduced over the past year
- Ask for a longer amortization
- Raise the down payment by a few points
These four levers act fast. Renovations take months to register.
