The Loan-to-Value ratio (LTV) is calculated as:
Correct Answer
B) Loan amount divided by the lesser of the purchase price or appraised value
Loan-to-Value (LTV) ratio is calculated by dividing the loan amount by the lesser of the property's purchase price or its appraised value, expressed as a percentage. Lenders use LTV to assess risk — a higher LTV means less borrower equity and greater lender exposure. For example, a $180,000 loan on a $200,000 property yields a 90% LTV. Most conventional loans require private mortgage insurance (PMI) when LTV exceeds 80%.
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