A home is sold for $74,500 and is appraised for $78,000. the buyer's down payment will be 20%. the loan amount will be $59,600.
It is calculated as :
Lenders generally base the LTV on the lower price , whether purchase price or appraised value.
So, in the given case, $74, 500 x .80 = $59,600
The loan-to-value or LTV ratio is an assessment of lending risk that financial institutions and other lenders do examine before approving a mortgage. Generally, loan assessments with high LTV ratios are considered as the higher-risk loans. In this if the mortgage is approved, the loan has a higher interest rate.
Moreover, a loan with a high LTV ratio will require the borrower to purchase mortgage insurance to offset the risk to the lender.
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