Question

Ann wants to buy a building. The annual NOI for the building will be $175,000. She...

Ann wants to buy a building. The annual NOI for the building will be $175,000. She wants to get a 20 year interest only fixed rate mortgage at an annual rate of 8.35% with annual compounding and annual payments to buy the building. The lender has a minimum Debt Service Coverage Ratio (DSCR) of 1.20.

What is the largest annual loan payment the lender will allow Ann to make based on the DSCR?

A.

$1,746,506.99
B.

$102,600.26
C.

$145,833.33
D.

$210,000.00
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Homework Answers

Answer #1

DSCR is debt service coverage ratio. DSCR = Annual net operating income (NOI) / Annual loan payments

Given DSCR of 1.2, largest annual loan payments can be worth

1.2 = 175,000/ maximum Annual loan payments

or, maximum Annual loan payments = 175000/1.2 = $145833.33

Largest annual loan * Annual rate = Maximum annual loan payments

Or, Largest annual loan * 0.0835 = 145833.33

or Largest annual loan = 145833.33/0.0835 = $1,746,506.99

Thus option A is correct. $1746506.99 will be the largest annual loan available.

Kindly upvote if you liked. Leave a comment for any query. Thanks

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