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National Real Estate Exam (PSI)FinancingEasy

A buyer is purchasing a home for $250,000 and obtains a loan of $200,000. What is the loan-to-value (LTV) ratio?

  1. A85%
  2. B70%
  3. C75%
  4. D80%
Show answer & explanation

Correct answer: D. 80%

LTV = Loan Amount ÷ Purchase Price = $200,000 ÷ $250,000 = 0.80, or 80%.

Why the other options are wrong

  • A. Incorrect; too high based on the numbers given.
  • B. Incorrect; does not match the division result.
  • C. Incorrect; too low based on the numbers given.

Loan-to-Value (LTV) Ratio

The percentage of a property's value that is financed by a loan, calculated as loan amount divided by appraised value or purchase price (whichever is lower).

  • Higher LTV = higher risk to lender
  • LTV above 80% usually requires PMI
  • Formula: Loan Amount ÷ Property Value

Memory trick: Loan divided by value tells the lender how risky the deal will be.

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