Question

Jeffrey has accepted an offer of $310,000 for his house. The buyer is making a $50,000 down payment, and the buyer's appraisal came in at $300,000. On what number will the buyer's lender base the loan-to-value ratio?

Answer 1

The buyer's lenders will base the loan-to-value ratio on an amount ($300,000) which is lesser, either of the sales price or appraised value.

Loan-to-value ratio (LTV) helps in assessing the risk on lending and are used by financial institutions & other lenders to examine the risk before approving a mortgage.

• Loan-to-value ratios are calculated by dividing the loan amount by the most current appraised value of the the house.

• For instance, if appraised property value is $220,000 and the Loan amount is $200,000. Then, the Loan-to-value ratio will be 90% ($200,000/$220,000).

Learn about loan-to-value ratio here

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Answer 2

Answer : The buyer's lender will base the loan-to-value ratio on the appraised property value which is 300,000 dollars

LTV = 83%

Lenders and some financial institutions make use of loan-to-value ratio (LTV) to assess the risk of lending out funds for mortgage and other types of lending.

LTV ratio = MA/APV  

where:

MA = Mortgage Amount

APV = Appraised Property Value

From the question, it is given that

APV = 300,000 dollars

The mortgage amount = 300,000 - 50,000

MA = 250,000 dollars

On what number will the buyer's lender base the loan-to-value ratio?

The buyer's lender will base the loan-to-value ratio on the appraised property value which is 300,000 dollars

The LTV = 250000/300000 x 100

LTV = 83%

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