Finance
The debt coverage ratio (DCR) is used in commercial lending to measure:
AThe borrower's personal credit score
BThe property's ability to generate sufficient income to cover the mortgage payment✓ Correct
CThe ratio of the loan amount to the property's appraised value
DThe percentage of the portfolio in commercial real estate
Explanation
DCR = Net Operating Income (NOI) ÷ Annual Debt Service. Lenders require a DCR above 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.
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.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Math Concepts
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