When preparing an Illinois closing estimate, a licensee calculates the loan-to-value (LTV) ratio. Which formula correctly defines LTV?
Correct Answer
D) The loan amount divided by the property's appraised value or the lender's accepted valuation basis.
Loan-to-value ratio is calculated by dividing the loan amount by the property's appraised value (or purchase price, whichever the lender uses as the valuation basis). LTV is a primary underwriting metric in Illinois and nationwide; lenders use it to assess collateral risk, set interest rates, and determine whether private mortgage insurance is required.
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Related Topics & Key Terms
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Related Concepts
RESPA is a federal law that requires lenders to provide borrowers with information about settlement costs, prohibits kickbacks and referral fees, and limits escrow account deposits. It applies to federally related mortgage loans.
The secondary mortgage market is where existing mortgage loans are bought and sold between lenders, investors, and government-sponsored enterprises (GSEs) like Fannie Mae, Freddie Mac, and Ginnie Mae.
TILA is a federal law that requires lenders to disclose the true cost of credit to borrowers, including the annual percentage rate (APR), total finance charges, and loan terms. It is implemented by Regulation Z.
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