Certified Apartment Portfolio Supervisor (CAPS) Practice Exam - Module 2

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Prepare for the CAPS Exam with a comprehensive study of Module 2. Utilize our practice resources filled with flashcards, multiple choice questions, and thorough explanations to ensure your success!

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What two calculations do lenders primarily use to evaluate loans?

APR and PMI
Debt-to-Income Ratio and Credit Score
LTV and DCR
Cash Flow Analysis and Return on Investment

The correct answer is: LTV and DCR

Lenders primarily focus on the Loan-to-Value (LTV) ratio and the Debt Coverage Ratio (DCR) when evaluating loans. The Loan-to-Value ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. It is a critical measure because it helps determine the risk of a loan; a higher LTV ratio indicates a higher risk for the lender, as it suggests the borrower is financing a larger portion of the property with debt. The Debt Coverage Ratio is another essential metric that assesses a property’s ability to generate enough income to cover the debt obligations associated with it. This ratio indicates to the lender whether the property's income is sufficient to cover the loan payments, thereby gauging the risk of default. By focusing on these two calculations, lenders can make informed decisions regarding the approval and amount of a loan, as they reflect both the risk inherent in the property's value and the borrower’s ability to repay the loan. This approach ensures that loans are not only secured adequately but also sustainable based on the projected income from the property.