Question

The bank has a$1,000,000 loan secured by Property A. This property has an NOI of $120,000 and a stablized NOI of $100,000. market oriented financing terms include interest rate of 6.5% and amortization of 20 years. the lender’s targeted DSC is 1.20. based on the maximum supportable loan amount, does this project support thhe loan. If not, what is the shortfall?

A. yes. there is no underwriting shortfall

B. the shortfall is $54,167

C. the shortfall is $68,578

D. the shortfall is $117,708

Answer 1

Answer :-

The property will support a debt service = NOI / DSC
= $ 120000 / 1.2 = 100000
The corresponding loan amount will be = $100000 / 6.5%
= $100000 / 0.065
= $ 1538461.5

Since the loan amount = $ 1538461.5 which is greater than $ 1000000 therefore the project support the loan amount.

Therefore the Option A is correct. There is no underwriting shortfall.