Which of the following statements about mortgage and closing math is NOT accurate under Illinois law and practice?
Correct Answer
D) Loan-to-value ratio is calculated by dividing the down payment by the purchase price.
Option B is incorrect because the loan-to-value (LTV) ratio is calculated by dividing the loan amount by the property's appraised value or purchase price — not the down payment by the purchase price. For example, a $180,000 loan on a $200,000 property yields an LTV of 90%. Confusing the down payment with the loan amount inverts the relationship and produces a meaningless ratio that lenders do not use.
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Related Topics & Key Terms
Key Terms:
Related Concepts
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.
The debt-to-income ratio (DTI) compares a borrower's monthly debt obligations to their gross monthly income. It is used by lenders to determine how much mortgage a borrower can afford.
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