A property is under contract at $355,000 and appraises at $342,000. The borrower puts down $60,000 and finances the rest of the contract price. For this conventional purchase, what is the loan-to-value ratio using the lower of the purchase price and appraised value, rounded to one decimal place?
Correct Answer
B) LTV 86.3%: the ratio uses the lower of the price and the appraisal
B. The mathematical ratio, rounded as requested, is 86.3%. The stated financing is $355,000 − $60,000 = $295,000. Use the lower $342,000 appraisal: $295,000 ÷ $342,000 × 100 = 86.257309…%, or 86.3% to one decimal. Scope and exceptions: One-decimal rounding is the exercise’s instruction, not Fannie Mae delivery rounding. Its standard guide truncates to two decimals then rounds upward to a whole percentage. Special transaction rules can also differ; this calculation is not an eligibility decision. Source: Calculation table and rounding instructions — https://selling-guide.fanniemae.com/sel/b2-1.2-01/loan-value-ltv-ratios
Why This Is the Correct Answer
B. The mathematical ratio, rounded as requested, is 86.3%. The stated financing is $355,000 − $60,000 = $295,000. Use the lower $342,000 appraisal: $295,000 ÷ $342,000 × 100 = 86.257309…%, or 86.3% to one decimal. Scope and exceptions: One-decimal rounding is the exercise’s instruction, not Fannie Mae delivery rounding. Its standard guide truncates to two decimals then rounds upward to a whole percentage. Special transaction rules can also differ; this calculation is not an eligibility decision.
Why the Other Options Are Wrong
Option A: LTV 83.1%: the ratio always uses the contract price the parties agreed
It incorrectly uses $355,000 as the denominator.
Option C: LTV 82.5%: subtract the down payment from the appraisal to get the loan
It changes the loan to $282,000 by subtracting cash from the appraisal rather than price.
Option D: LTV 84.6%: the ratio uses the average of the price and the appraisal
It averages the two values instead of selecting the lower one.
Exam Tip
Determine the actual loan amount separately from the value used in the denominator.
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