Question

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) Ch10

a.

$923,700

b.

$688,400

c.

$749,600

d.

$841,400

Answer 1

Monthly loan payment = $66461.54/12 =5538.46
Maximum loan that can b affordable would be present value of all loan payments
Present Value Of Annuity
c= Cash Flow	5538
i= Interest Rate =6%/12 =	0.005
n= Number Of Periods =30*12 =	360
Present Value Of An Annuity
= C*[1-(1+i)^-n]/i]
Where,
C= Cash Flow per period
i = interest rate per period
n=number of period
= $5538[ 1-(1+0.005)^-360 /0.005]
= $5538[ 1-(1.005)^-360 /0.005]
= $5538[ (0.834) ] /0.005
=$923700
Correct Option a.923700