What is a loan-to-value ratio?
A loan-to-value ratio (LTV) is a ratio of a mortgage loan principal to the property’s appraised value or its sales price, whichever is lower. For example, if a borrower obtains an $80,000 loan on a property that is appraised for $100,000, the loan-to-value ratio would be 80%.
Who sets the loan-to-value ratio?
Loan-to-value ratios depend on the individual lender’s policy and governmental banking regulations. Lenders generally feel that the greater the equity a borrower has in a property, the less likely that the borrower will default and lose the property through foreclosure. In other words, the lower the loan-to-value ratio as a percentage, the lower the likelihood the borrower will default.
How high can loan-to-value ratios go?
When private mortgage insurance is used, the lender can sometimes offer 90 to 95 percent loan-to-value ratios, as long as the property is going to be owner-occupied. Investors might qualify for 80 percent financing, FHA ratios are fixed by statute, and a veteran with a VA loan can borrow the purchase price or 100 percent loan-to-value.
What would a loan-to-value question look like on the real estate exam?
If you encounter an LTV question on the real estate licensing exam, it will look something like this:
Which of the following types of loans would usually have the highest loan-to-value ratio:
Explanation: On a conventional loan, an FHA loan, or an FHA-VA loan, the borrower will have to make a down payment. Under the VA program, it is possible to purchase property without a down payment.
What else can help me prepare to pass my real estate licensing exam on my first attempt?
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