Consider an 8.5% loan amortizing at a 25-year rate with monthly payments. What is the maximum amount that can be loaned on a property where net operating income (NOI) is $500,000 per year, if the underwriting criteria specify a debt service coverage ratio (DSCR) no less than 1.25X?

Maximum Amount that can be loanded = $4139619

Explanation:

DSCR = NOI / Debt Service

Debt Service = Principal + Interest

NOI = $ 500000

Debt Service = 500000 / 125 % = $ 400,000

The loan would be ammortized monthly over a period of 25 years.

Monthly Payment or EMI

E = P×r×(1 + r)n/ ((1 + r)n - 1)

12E = 400,000 = [P×r×(1 + r)n/ ((1 + r)n - 1)] * 12

or, P = 400000 / 0.0966272500154557 = $4139619

Maximum Amount that can be loanded = $4139619

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