A property appraises at $400,000. The borrower takes a first mortgage of $300,000 and a simultaneous second of $40,000. Using $400,000 as the property value, what are the first-mortgage LTV and combined LTV?
Correct Answer
D) LTV 75%, CLTV 85%: the first lien alone, then both liens together
D. First-mortgage LTV is 75%; combined LTV is 85%. $300,000 ÷ $400,000 = 75%. ($300,000 + $40,000) ÷ $400,000 = 85%. The simultaneous second is included once in the combined numerator. Scope and exceptions: The question supplies the eligible value base. Do not assume appraisal alone is always the correct purchase denominator. For a HELOC, distinguish drawn balance used in CLTV from the full line used in HCLTV; these ratios alone do not establish approval. Source: Calculation of CLTV Ratio — https://selling-guide.fanniemae.com/sel/b2-1.2-02/combined-loan-value-cltv-ratios
Why This Is the Correct Answer
D. First-mortgage LTV is 75%; combined LTV is 85%. $300,000 ÷ $400,000 = 75%. ($300,000 + $40,000) ÷ $400,000 = 85%. The simultaneous second is included once in the combined numerator. Scope and exceptions: The question supplies the eligible value base. Do not assume appraisal alone is always the correct purchase denominator. For a HELOC, distinguish drawn balance used in CLTV from the full line used in HCLTV; these ratios alone do not establish approval.
Why the Other Options Are Wrong
Option A: LTV 85% and CLTV 85%: both ratios count every lien on the property
It includes the second mortgage in plain first-mortgage LTV.
Option B: LTV 85% and CLTV 75%: the combined figure is always the lower one
It reverses the two ratios.
Option C: LTV 75% and CLTV 75%: a simultaneous second is excluded from both
It omits the second mortgage from CLTV.
Exam Tip
Keep the denominator consistent and add subordinate financing only to the combined ratio.
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