Question
Shopping for Loans Part I. You come across a triplex that you think would make a great rental property. The appraiser hired by the bank
Shopping for Loans Part I. You come across a triplex that you think would make a great rental property. The appraiser hired by the bank determines the market value of the property is $680,000; however, due to your negotiation skills and a highly motivated seller you sign a contract to purchase the property for just $600,000. Your banker approves you as a borrower and notes that the bank recently increased its loan-to-value constraint from 75% to 80%. The bank also does not employ a debt service coverage ratio constraint. Q3(a). What is the maximum loan you can obtain based solely on the loan-to-value constraint? Show your work. Q3(b). Your lender reports that the loan committee approved a maximum loan amount of $480,000. What other constraint must be at work here? Based on the information provided, what specific parameters is the bank following regarding that constraint? Explain your reasoning and show your work.
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