Finance
A Kentucky property's assessed value is $250,000. The appraised value for lending purposes is $270,000. The lender bases the loan on:
AThe assessed value of $250,000
BThe appraised value of $270,000✓ Correct
CThe average of both values at $260,000
DThe purchase price regardless of other values
Explanation
Lenders use the appraised value (or the lesser of appraised value and purchase price) for loan calculations, not the tax-assessed value, which may differ from market value.
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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.
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.
Math Concepts
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