In an LTV calculation, what is used in the denominator?

In an LTV calculation, what is used in the denominator?

• A. The loan amount.
• B. Appraised value or purchase price.
• C. The down payment.
• D. The monthly payment.

Answer: (B)

When evaluating risk with a loan-to-value ratio, you’re comparing the loan amount to the property's value. The value in the bottom part of that ratio is the appraised value or the purchase price, whichever is lower. This ensures the ratio reflects how large the loan is relative to what the property is actually worth. For example, if the loan is 300,000 and the lower figure between appraised value and purchase price is 310,000, the LTV is about 96.8%. If the lower figure were 305,000, the LTV would be about 98.3%. Down payment and monthly payments aren’t used in the denominator; they influence other aspects of financing, while the numerator is the loan amount.

When evaluating risk with a loan-to-value ratio, you’re comparing the loan amount to the property's value. The value in the bottom part of that ratio is the appraised value or the purchase price, whichever is lower. This ensures the ratio reflects how large the loan is relative to what the property is actually worth. For example, if the loan is 300,000 and the lower figure between appraised value and purchase price is 310,000, the LTV is about 96.8%. If the lower figure were 305,000, the LTV would be about 98.3%. Down payment and monthly payments aren’t used in the denominator; they influence other aspects of financing, while the numerator is the loan amount.