Finance
What is the 'loan-to-value ratio' (LTV) and why does it matter in Idaho real estate financing?
AThe ratio of income to loan payment
BThe ratio of the loan amount to the appraised value or purchase price, whichever is lower✓ Correct
CThe ratio of down payment to purchase price
DThe ratio of equity to debt
Explanation
LTV = Loan Amount / Appraised Value (or purchase price, whichever is lower). Higher LTV means more lender risk.
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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.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
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.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
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