Which of the following metrics is not used to determine the maximum loan amount?

• A. cash-on-cash
• B. net operating income
• C. loan-to-value
• D. debt service coverage ratio

Answer: (A)

When underwriting a loan, the emphasis is on cash flow and collateral, not on the investor’s cash-on-cash return. Cash-on-cash measures how much cash the investor earns relative to their cash invested, which is an equity performance metric rather than a debt-issuance constraint. It doesn’t directly affect how large a loan a lender will approve.

Maximum loan size is typically constrained by value and debt service feasibility. The loan-to-value metric ties the loan amount to the property’s appraised value, preventing the loan from exceeding a percentage of value. Debt service coverage ratio ensures the property’s NOI can cover the annual debt service by a required multiple, so NOI and the debt service level directly limit how much debt can be supported. Net operating income feeds into that DSCR calculation and is thus part of the underwriting that caps the loan.

So, cash-on-cash isn’t used to determine the maximum loan amount; it’s about investor returns after financing, not the debt underwriting.