looking only at the debt service coverage ratio requirement, will the lender approve your proposed $2.6 million loan? explain your reasoning and show your work.

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anzlaiman anzlaiman · Answer 1 · 2022-11-15T21:05:56+01:00

=$1,792,984.5 here loan amount will be very less hence one would reject it.

Debt service coverage ratio = Net operating income/total debt service

So, Total debt service = 2.6million/PVIFA(6.75%,30years)= 2600,000/12.727 =204287.27 = 240000/204287.6 =1.1748

Since lender requires DSCR to be 1.25 he will reject this proposal 1.25 =240000/total debt service

Total debt service = 240,000/1.25 =192,000

Now amount of loan = 192000 = amount of loan/PVIFA(6.75%,30Years)

Amount of loan = 192000*12.727 =24,43,584$

Here we need to find maximum loan amount lender will agree to give, we will use formula of DSCR 1.3 =240000/total debt service

Total debt service = 240,000/1.3 =1,84,615.38

Now amount of loan = 1,84,615.38 = amount of loan/PVIFA(6%,15Years)

Amount of loan = 184615.38*9.712 =$1,792,984.5

here loan amount will be very less hence one would reject it.

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