Finance
What is 'loan-to-value ratio' (LTV) and why does it matter in Pennsylvania 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, affecting interest rates, PMI requirements, and maximum loan amounts✓ Correct
CThe ratio of principal to interest in a mortgage payment
DPennsylvania's cap on mortgage fees as a percentage of loan value
Explanation
LTV = Loan Amount / Appraised Value. High LTV means less equity (greater lender risk), resulting in higher interest rates and PMI requirements.
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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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