Property Valuation
An appraiser values a Connecticut home at $520,000 for a purchase loan. The purchase price is $540,000. The lender will base the loan on:
AThe purchase price of $540,000
BThe appraised value of $520,000 (the lesser of appraised value or purchase price)✓ Correct
CThe average of $530,000
DWhatever the buyer and seller agree upon
Explanation
Lenders base loan amounts on the lesser of the appraised value or the purchase price. If the appraisal is $520,000 and the purchase price is $540,000, the lender uses $520,000 as the value for LTV calculations.
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Key Terms to Know
Loan-to-Value Ratio (LTV)
The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Option ContractA contract giving the buyer the right, but not the obligation, to purchase a property at a specified price within a specified time period.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Math Concepts
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