chapter  3
29 Pages

Debt financing

ByCraig Furfine

Chapter 3 of Practical Finance for Property Investment examines the key features of an investment property mortgage. Readers of this chapter will gain familiarity with how to amortize a loan as well as better understand how lenders generally discourage prepayment. The chapter details the mortgage underwriting procedure common among lenders to better educate the property investor on how the investment property looks from the lender’s perspective. The chapter defines common underwriting metrics, such as loan-to-value, debt service coverage, and debt yields, and demonstrates how lending guidelines tied to these metrics influence how much debt a lender is likely to be willing to provide to an investor. In conclusion, the chapter presents a case study illustrating that an investor’s borrowing opportunities are related in important ways to property characteristics.