Real Estate Math
A Washington property is purchased for $475,000. The buyer makes a 15% down payment. What is the LTV ratio, and does PMI apply?
A15% LTV; no PMI required
B85% LTV; PMI is required because LTV exceeds 80%✓ Correct
C85% LTV; no PMI required on conventional loans above 80% LTV
D75% LTV; PMI is not required
Explanation
Down payment = $475,000 × 15% = $71,250. Loan = $475,000 – $71,250 = $403,750.
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Key Terms to Know
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.
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.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Math Concepts
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