Loan-to-value ratio (LTV) is calculated by dividing the loan amount by which of the following?
Correct Answer
B) The lesser of the appraised value or the purchase price
Loan-to-value ratio (LTV) is calculated as: LTV = Loan Amount ÷ the lesser of the appraised value or the purchase price. Lenders use the lower of the two figures to protect against overpaying relative to market value. For example, if a home is appraised at $200,000 but the purchase price is $190,000, the lender uses $190,000 as the denominator. A higher LTV indicates greater lender risk and may require private mortgage insurance (PMI). Mississippi lenders and secondary market guidelines rely on this ratio to determine loan eligibility and insurance requirements.
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