Assume a lender requires a 1.3 debt coverage ratio as a minimumand the net operating...

Assume a lender requires a 1.3 debt coverage ratio as a minimum and the net operating income of a property is $86,400. What is the maximum loan you would expect to negotiate if a lender is offering a 30 year self-amortizing loan structure at 6% (with monthly payments)? (rounded)

	a.	$923,700
	b.	$688,400
	c.	$749,600
	d.	$841,400

Solutions

Expert Solution

Debt Coverage Ratio = Net Operating Income/Total Debt Service

1.3 = $86,400/Total Debt Service

Total Debt Service = $66,461.54

So, Monthly Loan Payment = Total Debt Service/12 = $66,461.54/12

Monthly Loan Payment = $5,538.46

Calculating the Loan Amount Based on the Monthly Payment:-

Where, C= Monthly Loan Payment = $5,538.46

r = Periodic Interest rate = 6%/12 = 0.5%

n= no of periods = 30 years*12 = 360

Present Value = $923,768.68

So, the maximum loan you would expect to negotiate (rounded) to is $923,700

jeff jeffy answered 2 years ago

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