Question

Suppose you plan to put a 20% down payment on a house and obtain a mortgage loan that is less than the size limit on conforming loans ($417,000) to finance the remainder of the purchase. Based on your understanding of the loan-to-value ratio, what is the maximum price that you could pay for a home with these restrictions in mind?

A) $500,400
B) $333,600
C) $521,250
D) $2,085,000

Answer 1

Answer: C - $521,250

Explanation:

LTV ratio = APV/MA

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where:

LTV ratio = Loan-to-value ratio

MA = Mortgage Amount

APV = Appraised Property Value

In this case, a down-payment of 20% is made which means LTV ratio is 80%.

Mortgage value is $417,000.

Therefore APV = MA/LTV ratio

APV = 417000/80%

= 417000*100/80

= $521,250

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