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Wall Street Real Estate Financial Modeling Practice Test

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Which of the following is not a common ratio used to measure the size of a loan?
Correct Answer:
Loan-to-Income (LTI)
Explanation:
In real estate lending, the loan size is driven by collateral value and the property’s income stream, not by the borrower’s earnings. A loan-to-value ratio directly caps how large the loan can be relative to the property’s value, making it a primary sizing tool. Debt service coverage ratio assesses whether the property’s income is sufficient to cover debt payments, which also constrains how big a loan can be given the cash flow. A loan-to-income ratio, however, connects loan amount to the borrower’s personal income and is a measure used more in consumer credit underwriting, not in sizing a property loan. It focuses on affordability rather than how large a loan a property can support, so it isn’t a common metric for measuring the size of a loan.

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