Finance
What is 'loan-to-value ratio' (LTV) and how does it affect Illinois mortgage lending?
AThe ratio of the loan amount to the borrower's annual income
BThe ratio of the loan amount to the property's appraised value or purchase price; higher LTV means more risk and often requires PMI✓ Correct
CThe ratio of property taxes to property value; affects tax deductibility
DThe ratio of principal to interest payments over the loan term
Explanation
Loan-to-value ratio (LTV) is calculated by dividing the loan amount by the lower of appraised value or purchase price. A $240,000 loan on a $300,000 property has an 80% LTV. Higher LTV ratios represent greater risk to lenders. Conventional loans over 80% LTV typically require PMI. FHA loans allow LTV up to 96.5% with mortgage insurance.
Related Illinois Finance Questions
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