October 2017

Lender Lingo
Debt Service from Security

This ratio is similar to Debt Service Ratio that we have previously discussed, but it only use the net income from the property being used as security for the loan in relation to the loan payment. This ratio isn't as widely used by banks as it used to be due to the higher land values that we see today, however it is a ratio that you should use to help you decide if purchasing a new farm makes sense. If the income from the new farm won't make the loan payment do you really want to buy it? In an environment where land values are increasing you could justify the purchase, but in an economic environment where land prices might decline it might not be something you want to take on.  
Net Income from Property/Loan Payment


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