Finance
What is 'total debt service coverage' in commercial real estate lending in Illinois?
AThe total amount of debt service paid over the loan term
BThe ratio of NOI to total annual debt service (principal and interest); lenders use it to ensure the property generates sufficient income to service the debt✓ Correct
CThe percentage of total project costs funded by debt
DThe total of all loans secured by the property
Explanation
Debt Service Coverage Ratio (DSCR) = NOI ÷ Annual Debt Service. For example, if NOI is $120,000 and annual debt service (P&I) is $90,000, DSCR = 1.
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Key Terms to Know
Net Operating Income (NOI)
The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Math Concepts
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