Loan-to-value ratio (LTV) is calculated by dividing the loan amount by:
Correct Answer
B) The lesser of the appraised value or the purchase price
Loan-to-value ratio (LTV) is calculated by dividing the loan amount by the lesser of the property's appraised value or the purchase price. Lenders use the lower figure to protect against overpaying relative to market value. For example, if a property appraises at $200,000 but the purchase price is $190,000, the LTV is calculated using $190,000. A higher LTV indicates greater lender risk and typically requires private mortgage insurance (PMI) when it exceeds 80%.
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