LTV = Loan Amount / Property Value. Why 80% matters, how PMI is triggered, and the appraisal twist the NY exam uses.
LTV = Loan Amount ÷ Property Value
How to solve it, step by step
- Identify the loan amount.
- Identify the value — the lesser of sale price and appraised value.
- Divide loan by value and express as a percentage.
- Check the 80% threshold if the question mentions PMI.
Worked examples
A $360,000 loan on a $400,000 property. LTV = $360,000 ÷ $400,000 = 90%. Above 80%, a conventional loan usually requires PMI.
The appraisal twist: a home is under contract at $500,000 but appraises at $480,000. At 90% LTV the lender lends on the lower figure: $480,000 × 0.9 = $432,000.
What the NY exam actually asks
LTV questions test whether you know lenders use the lesser of sale price or appraised value. The 80% threshold and its link to PMI comes up repeatedly.
Try one yourself
A property is under contract at $520,000 and appraises at $500,000. The buyer obtains a $400,000 loan. What is the LTV?
Show the answer
80%. Lenders use the lower of price or appraisal, so the value is $500,000: $400,000 ÷ $500,000 = 80%.
Common mistakes
- Using the sale price when the appraisal came in lower. Lenders always use the lesser figure.
- Inverting the fraction. Loan goes on top, value on the bottom.
- Forgetting that LTV above 80% triggers PMI on conventional loans.
Questions students ask
What happens if the appraisal is lower than the sale price?
The lender lends against the appraised value. The buyer must cover the gap in cash or renegotiate.
Why does 80% LTV matter?
Above 80% on a conventional loan, lenders generally require private mortgage insurance.
Related formulas
- How to calculate a down payment
- How to calculate discount points
- All 12 formulas — NY Real Estate Math Cheat Sheet
- Real Estate Math Calculator
Practise this. The free 10-question math quiz drills these formulas, and the free timed practice exam puts them under exam conditions.
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