Florida Real Estate Sales Associate Examination Content OutlineReal Estate MathMedium
A buyer is making a 15% down payment on a $320,000 home purchase. The lender's loan-to-value (LTV) ratio is 85%. What is the loan amount the buyer is seeking?
- A$320,000
- B$272,000
- C$48,000
- D$288,000
Show answer & explanationAnswer & explanation
Correct answer: B. $272,000
The loan amount is determined by either subtracting the down payment from the purchase price or by multiplying the purchase price by the loan-to-value (LTV) ratio. Loan amount = $320,000 * 0.85 (LTV) = $272,000. Alternatively, Down Payment = $320,000 * 0.15 = $48,000. Loan Amount = $320,000 - $48,000 = $272,000.
Why the other options are wrong
- A. This is the total purchase price, not the loan amount.
- C. This is the down payment amount, not the loan amount.
- D. This would be the loan amount if the LTV was 90% (10% down payment).
Loan-to-Value (LTV) Ratio
A financial metric that compares the amount of a mortgage loan to the appraised value or purchase price of the property, whichever is lower.
- Loan Amount / Property Value = LTV.
- Expressed as a percentage.
- Higher LTV typically means higher risk for lender.
Memory trick: Lenders Lend Less than Value.