Minnesota State Real Estate Practice Test

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Prepare for the Minnesota State Real Estate Test with questions designed for better comprehension. Use flashcards, access multiple choice questions with detailed explanations, and boost your chances of passing successfully.

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What is the LTV ratio if a borrower is taking on a $92,500 mortgage on a property appraised at $100,000?

90%
92.50%
95%
85%

The correct answer is: 92.50%

The loan-to-value (LTV) ratio is a financial term that expresses the ratio of a loan to the value of an asset purchased. To calculate the LTV ratio, you take the amount of the mortgage loan and divide it by the property's appraised value, then multiply by 100 to convert it to a percentage. In this scenario, the borrower is taking on a mortgage of $92,500 on a property that has been appraised at $100,000. The calculation for the LTV ratio would be: LTV = (Mortgage Amount / Appraised Value) × 100 Substituting the values: LTV = ($92,500 / $100,000) × 100 = 0.925 × 100 = 92.5% Thus, the LTV ratio is 92.5%. This ratio is significant in real estate as it helps lenders assess the risk associated with the loan. A higher LTV may indicate more risk since it suggests that the borrower has a smaller equity stake in the property, which could be an important factor in a lending decision. This makes the answer of 92.50% the accurate and correct choice.