The Chicago Commercial Mortgage Group targets the needs of commercial investors.

Three Ratios

Most of real estate lending can be boiled down to the results of these three ratios:
  • Loan-To-Value Ratio (LTV)
  • Debt Ratio
  • Debt Service Coverage Ratio (DSCR)
The bulk of the energy spent “processing” a loan is merely an attempt to verify the numbers that go into the numerator and denominator of the above 3 ratios.

The Loan-to Value Ratio (LTV) is defined as follows: Loan-to-Value= Total loan balances (1st mortgage+2nd mortgage)/Fair market value (as determined by an independent appraiser)

Loan-to-Value Ratios seldom exceed 80% because the lender always wants some extra protection against default.

The second ratio that lenders use when underwriting a loan is a Debt Ratio. The Debt Ratio compares the amount of bills that the borrower must pay each month to the amount of the monthly income he earns. More precisely, the Debt Ratio is defined as: Debt Ratio = Monthly Debt Obligations/Gross Monthly Income.

The final ratio used in lending is the Debt Service Coverage Ratio (DSCR). The Debt Service Coverage Ratio is a sophisticated ratio only used for large loans on income producing properties. It is defined as:
  • Debt Service Coverage Ratio = Net Operating Income/Debt Service

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