Real Estate Math
A borrower is buying a $500,000 home with a conventional loan and 20% down payment. They want to know the loan-to-value (LTV) ratio. What is the LTV?
A75%
B80%✓ Correct
C85%
D90%
Explanation
Loan amount: $500,000 × (1 − 0.20) = $400,000.
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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.
Math Concepts
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