Maximum Mortgage Loan AmountThe 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 this property is 1,000,000 and the lender has a maximum LTV requirement of 70%, then the maximum mortgage loan amount that the lender will be willing to lend against this property on the basis of the LTV ratio will be: MLA = LTV * Property Value = 1,000,000 * 0.7 =$700,000 However, as indicated earlier the maximum mortgage loan amount that will be given needs to satisfy both the minimum DCR ratio and the maximum LTV ratio criteria. Therefore, the maximum loan amount that the particular lender can provide for this property is $700,000, which satisfies both requirements. Any amount above that will violate the maximum LTV criterion of 70%.
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