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

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

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Ann wants to buy a building. The annual NOI for the building will be $100,000. She...
Ann wants to buy a building. The annual NOI for the building will be $100,000. She wants to get a 30 year, fully amortizing, fixed rate mortgage at an annual rate of 5% with monthly compounding and monthly payments to buy the building. The lender has a minimum Debt Service Coverage Ratio (DSCR) of 1.20. If Ann gets a 50% LTV loan for $500,000, what is her DSCR?
Ann wants to buy an office building which costs $1,000,000. She obtains a 30 year fully...
Ann wants to buy an office building which costs $1,000,000. She obtains a 30 year fully amortizing fixed rate mortgage with 80% LTV, an annual interest rate of 4%, with monthly compounding and monthly payments. The mortgage has a 2% prepayment penalty if the borrower prepays in the first 5 years. Suppose Ann makes the required monthly payment for 3 years and prepays after her final monthly payment at the end of 3 years. What is the annualized IRR on...
A property has an expected first-year NOI of $1 million. Recent sales of similar properties indicate...
A property has an expected first-year NOI of $1 million. Recent sales of similar properties indicate that a first-year (or going-in) cap rate of 12% is reasonable for valuation purposes. A lender requires a minimum DSCR of 1.25x and will loan up to 75% of appraised value on a first mortgage. Say the mortgage interest rate is 6.75%, payments are monthly, and the amortization period is 20 years. (10 points)  Hint: solve for the debt service. what is the implied loan...
Question 2 A property is expected to generate $300,000 of NOI over the next 12 months....
Question 2 A property is expected to generate $300,000 of NOI over the next 12 months. Discussion with lenders leads to the conclusion that the minimum acceptable debt-coverage ratio will be 1.20 and that loan terms will be 8% per annum, with 20-year amortization (monthly payments). A. What is the maximum supportable annual debt service? Solve 3 ways: - the PV or PMT functions on Google Sheets - your HP 12c (tell me which keys you used) -the Mortgage Constant...
Mr. Homemaker has just taken out a $175,000 mortgage at an interest rate of 3.6% [Annual...
Mr. Homemaker has just taken out a $175,000 mortgage at an interest rate of 3.6% [Annual rate]. The mortgage calls for equal monthly payments for 15 years. Then the amount of the monthly payment is:[Assume monthly compounding]
a)Maria wants to buy a car. She has saved $2,500 for a down payment, and she...
a)Maria wants to buy a car. She has saved $2,500 for a down payment, and she can afford payments of $250 per month for 5 years. Her credit union has offered her an auto loan that charges 4.8% per year compounded monthly for 5 years. What is the largest loan she can afford? What is the most expensive car she can afford? b) Find the interest rate needed for an investment of $5100 to triple in 6 years if interest...
Ned Stark wants to buy a building. The annual revenues are $350,000 and annual operating expenses...
Ned Stark wants to buy a building. The annual revenues are $350,000 and annual operating expenses are $125,000. Ned decides that a fair and honorable price to pay would be $4,000,000. What is the cap rate of this purchase?
Alexis want to buy a house in 5 years. She wants to save $75,000 over the...
Alexis want to buy a house in 5 years. She wants to save $75,000 over the next five years for a down payment. If she can earn an annual rate of 9% on her savings, how much must she deposit in equal payments at the end of each month for the next five years to reach her goal? A) $1,250                    B) $765.87                  C) $994.38                  D) $8,420.13 Alexis is ready to buy her house. She will purchase the $450,000 house with...
Suppose you are planning to develop a new apartment building next to Iowa State. You anticipate...
Suppose you are planning to develop a new apartment building next to Iowa State. You anticipate that the project will take two years to develop at a total cost of $3,000,000. Once open, you expect the building to produce a Net Operating Income of $250,000 annually. You’ve arranged a financing package that covers the construction period with a two-year interest only (IO) loan offered at loan-to-value ratio of 80% and an annual interest rate of 6%. Once the building opens,...
Jake wants to buy a house for 150,000. He is considering applying for a mortgage. The...
Jake wants to buy a house for 150,000. He is considering applying for a mortgage. The lending value of the house assessed by the banker is 140,000. (a) Suppose Jake can take out an 80% conventional mortgage, what would be his required down payment? (b) What would be the down payment if Jake takes out a 90% high-ratio insured mortgage? (c) Given that Jake chooses (b) and decides to add the mortgage insurance fees (MIF) onto the mortgage loan, what...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT