A buyer is purchasing a property for $420,000 and obtaining a mortgage at 85% loan-to-value (LTV). What is the loan amount?
Correct Answer
A) $357,000
$420,000 × 0.85 = $357,000. Loan-to-value ratio expresses the loan amount as a percentage of the property's purchase price or appraised value. At 85% LTV, the lender finances 85% of the $420,000 purchase price, resulting in a $357,000 loan. The remaining 15% ($63,000) represents the buyer's required down payment.
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Related Topics & Key Terms
Key Terms:
Related Concepts
An adjustable-rate mortgage (ARM) has an interest rate that changes periodically based on market conditions, typically after an initial fixed-rate period. The rate adjustment is tied to a financial index plus a margin.
Closing costs are the fees and expenses paid by the buyer and seller at the closing of a real estate transaction, beyond the purchase price. They typically range from 2-5% of the purchase price.
A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.
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