ALB Commercial Capital has a nice guide for small balance (<$5 million) apartment building investment loans. In it they cover the three most important ratios investors have to clear in order to get a deal funded:
- Loan-To-Value Ratio (LTV) = Total loan balances (1st mtg + 2nd mtg) / Fair market value (as determined by appraisal). For Multifamily mortgages, LTVs seldom exceed 80%.
- Debt Service Coverage Ratio (DSCR, aka DCR, DSR) = Net Operating Income / Debt Service. Most lenders insist that this ratio exceed 1.2 with a few a allowing 1.15.
- Personal Debt Coverage Ratio (PDCR) = Monthly Personal Debt / Monthly Personal Income. The Personal Debt Ratio compares the amount of bills that the borrower must pay each month to the amount of income they earn. Personal Debt Ratios seldom are allowed to exceed 50% in practice.
In addition the guide covers other items that need to be addressed such as Continue reading The 3 Most Important Things You Need To Get an Apartment Building Investment Loan