Commercial Mortgage

A commercial mortgage is a loan secured by income-producing real estate such as apartment buildings, offices, retail or industrial property. DSCR underwriting originated here: commercial lenders divide net operating income by annual debt service and usually require a ratio of 1.20 to 1.40.

Commercial mortgages are typically shorter than residential loans, five to ten years with a balloon, amortized over 20 to 30 years, and are often made to an entity rather than an individual. Many are nonrecourse, which is why the lender leans so heavily on the property's coverage.

Residential DSCR loans borrowed the ratio and simplified it. They use gross rent instead of NOI, the full monthly payment instead of annual debt service, and accept a minimum of 1.0 rather than 1.2. The result is a 30-year loan on a one to four unit rental that qualifies the way a commercial loan does, without the commercial loan's balloon or shorter term.

Further reading: Commercial Mortgage on Wikipedia.