When preparing an Illinois closing estimate, a licensee must understand the loan-to-value (LTV) ratio. Which statement correctly defines LTV?
Correct Answer
B) LTV is the loan amount divided by the property's appraised value or lender-determined valuation basis.
LTV is calculated by dividing the loan amount by the property's appraised value (or other lender-accepted valuation basis). 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 — a key consideration on Illinois closing estimates.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A trustee sale is a type of foreclosure where a trustee, appointed under a deed of trust, sells the property at auction to satisfy the debt.
Usury is the practice of charging an interest rate that exceeds the maximum rate permitted by state law. Usury laws protect borrowers from excessive interest charges on loans.
A VA loan is a mortgage guaranteed by the Department of Veterans Affairs available to eligible veterans, active-duty service members, and surviving spouses. It offers no down payment and no private mortgage insurance requirements.
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