The maximum loan amount a lender will borrow against an income-producing property is determined on the basis of a minimum Debt Coverage Ratio (DCR) and, depending on the lender, a maximum Loan-to-Value Ratio (LTV). Since these ratios rarely imply the same loan amount, the lender will provide the smaller of the figures that are derived by applying these two criteria, if both have to be satisfied.
The formula for calculating the maximum amount of a fixed-rate loan, with a mortgage constant MC, that a lender would be willing to lend against an income-producing property, given a minimum DCR requirement is:
Maximum Loan Amount (MLA) = NOI / (MC * DCR)
For example, the maximum amount of a fixed-rate loan with an MC=8% and a minimum DCR requirement of 1.4 that a lender will be willing to lend against a property producing a yearly NOI of $100,000 will be:
MLA = 100,000/(0.08 * 1.4) = $892,857
If the value of the property is 1,000,000 and the lender has a maximum LTV requirement of 70%, then the maximum amount that the lender will be willing to lend against this property will be:
MLA = LTV * Property Value = 1,000,000 * 0.7 =$700,000
If you have an interesting comment in relation to this article please use the form below Related Posts to submit it. Please read submission guidelines before writing and submitting your comment.
|
Search Our Over 500-Page Website!
|
 |
Search Our Over 500-Page Website!
Related Posts
Debt Coverage Ratio (DCR)
Net Operating Income
Mortgage Constant
Adjustable Rate Motgages
Blanket Mortgage
Cash-Out Refinance
Do you Have an Interesting Comment on this Article?
Do you have an interesting comment on this article? Share it! Our visitors would love to read it!
Return from Maximum Loan Amount to Real Estate Dictionary
