How much would you have to put down on a house, costing $100,000, if the house had an appraised value of $105,000, and the lender required an 80% loan-to-value ratio?
Banks may choose to impose a maximum loan-to-value ratio on certain loans in order to minimize its risk of borrower default. This ratio is often used in real estate mortgages and loans for other long-term assets, to ensure that the borrower makes an adequate down payment.
Answer and Explanation:
With an appraised value of $105,000 and a loan-to-value rate of 80%, the maximum mortgage available would be $105,000 x 0.8 = $84,000.
Therefore, the down payment on the house would need to be at least $100,000 - $84,000 = $16,000.
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from Finance 102: Personal FinanceChapter 7 / Lesson 4