You want to get a commercial mortgage to buy a 10-unit apartment building that is on the market for $2.0 million. You have raised $500,000 in equity and have sufficient funds for closing costs as well. The building has 10 units all of which rent for $1,500 per month. You believe a vacancy and collection loss of 5% is reasonable and that operating expenses for the building will be 30% of EGI. If lenders require a minimum of 1.3 DCR for a LTV not to exceed 75% and mortgage rates are 5.0% fixed with a 30-year amortization period and a term of 10 years, can you qualify for the loan? Why or why not?
As the DCR is 1.44, which is greater than the minimum required DCR and the LTV is exactly as much required, we are eligible for the loan.
Here the amortization period is not required to solve the question as it is only usable for calculation of depreciation which is not required to be considered for the calclation of DCR.
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