How is the Loan-to-Value (LTV) ratio correctly calculated?
Correct Answer
B) Loan amount divided by the lesser of the appraised value or purchase price
LTV ratio is calculated by dividing the loan amount by the lesser of the property's appraised value or its purchase price, then expressing the result as a percentage. Lenders use the lower of the two figures to protect against overpaying relative to market value. A higher LTV indicates greater lender risk and often requires private mortgage insurance (PMI).
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