Finance
The loan-to-value (LTV) ratio is calculated as:
ALoan amount divided by purchase price, times 100✓ Correct
BPurchase price divided by loan amount, times 100
CDown payment divided by loan amount, times 100
DMonthly payment divided by loan amount, times 100
Explanation
LTV = (Loan Amount ÷ Appraised Value or Purchase Price) × 100. A higher LTV means more 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.
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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