When preparing a closing estimate in Illinois, which of the following correctly defines the loan-to-value (LTV) ratio?
Correct Answer
D) The loan amount divided by the property's appraised value or other lender-accepted valuation basis.
LTV is calculated by dividing the loan amount by the property's appraised value (or other lender-accepted valuation such as the purchase price, whichever is lower). For example, a $180,000 loan on a $200,000 property yields a 90% LTV. Lenders use this ratio to assess risk and determine whether private mortgage insurance (PMI) is required — typically when LTV exceeds 80%. This ratio is a standard component of Illinois mortgage-closing worksheets and financing disclosures.
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Related Topics & Key Terms
Key Terms:
Related Concepts
In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
Discount points are upfront fees paid to a lender at closing to reduce (buy down) the interest rate on a mortgage loan. One point equals 1% of the loan amount and typically reduces the rate by approximately 0.25%.
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
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