National Real Estate Exam (PSI)Real Estate CalculationsMedium
A home is appraised at $320,000. The buyer applies for a loan of $272,000. What is the loan-to-value (LTV) ratio?
- A90%
- B85%
- C75%
- D80%
Show answer & explanationAnswer & explanation
Correct answer: B. 85%
LTV = loan amount ÷ appraised value = $272,000 ÷ $320,000 = 0.85, or 85%.
Why the other options are wrong
- A. This would require a loan of $288,000.
- C. This would require a loan of $240,000.
- D. This would require a loan of $256,000.
Loan-to-Value (LTV) Ratio
LTV measures the loan amount as a percentage of the property's appraised value or sale price, whichever is lower.
- LTV = loan amount ÷ property value
- Higher LTV means more lender risk
- Lenders often require PMI above 80% LTV
Memory trick: Loan over value, that's the LTV