Finance
The loan-to-value (LTV) ratio is calculated as:
APurchase price divided by annual income
BLoan amount divided by appraised value✓ Correct
CMonthly payment divided by gross income
DInterest rate divided by principal
Explanation
LTV is calculated by dividing the loan amount by the appraised value of the property, expressed as a percentage. A lower LTV means less risk for the lender.
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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.
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.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
Math Concepts
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