Consider a 6.5% loan amortizing at a 20-year rate with monthly payments. What is the maximum amount that can be loaned on a property whose net operating income NOI) is $1,000,000 per year, if the underwriting criteria specify a debt service coverage ratio DCR) no less than 120%?
A) $69,444
B) $8,000,000
C) $9,314,236
D) $11,177,084
E) $13,412,500

Question

Quizplus · Accepted Answer

The maximum loan amount is determined by dividing the annual NOI by the DCR and then using the loan's interest rate and term to calculate the loan amount. The annual debt service is $1,000,000 / 1.2 = $833,333.33. Using a 6.5% interest rate and 20-year amortization, the loan amount is approximately $9,314,236.