Finance
The loan-to-value (LTV) ratio is calculated as:
APurchase price divided by appraised value
BLoan amount divided by the lesser of purchase price or appraised value✓ Correct
CDown payment divided by purchase price
DMonthly payment divided by gross monthly income
Explanation
LTV = Loan Amount ÷ Lesser of Purchase Price or Appraised Value. Lenders use this ratio to assess risk.
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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.
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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