Question

# 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?

She get 50% LTV loan for \$500,000, this means she obtained loan of \$250,000 (50% on value of building)

P = \$250,000; r= 5%/12 = 0.05/12 = 0.00417; n =30years*12months = 360months

EMI = \$250,000 * 0.00417 * (1+0.00417)360/[(1+0.00417)360-1]

= \$1,042.5 *(1.00417)360/[(1.00417)360-1]

= \$1,042.5 * 4.4730865/(4.4730865-1)

= \$1,042.5 * 4.4730865/3.4730865

= \$1,342.67

EMI is calculated to find out the total Interest & principal repayment during the year. So the one year interest payment & principal repayment = EMI *12months

= \$1,342.67 *12 = \$16,112.04

DSCR = \$100,000/\$16,112.04 = 6.21

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