Finance
Nebraska agricultural lenders consider the 'debt coverage ratio' for farm loans, which measures:
ATotal farm acreage ÷ total debt
BFarm net income ÷ total annual debt service obligations✓ Correct
CLand value ÷ operating loan balance
DCrop yield ÷ loan amount
Explanation
The farm debt coverage ratio (net farm income divided by total annual debt obligations including principal and interest) indicates the farm's ability to service its debt. Lenders typically require a DSCR well above 1.
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Key Terms to Know
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
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.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
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