Final answer:
When the Loan-to-Value (LTV) ratio is greater than 80%, the buyer must purchase mortgage insurance, which protects the lender in case of default.
Step-by-step explanation:
When the Loan-to-Value (LTV) ratio is greater than 80%, the buyer is required to purchase mortgage insurance. Mortgage insurance is designed to protect the lender in case the buyer defaults on their loan payments. It is an extra fee that is added to the cost of the home and increases the overall mortgage amount.
For example, if a buyer wants to purchase a home worth $200,000 and the LTV is 85%, the buyer would be required to purchase mortgage insurance to secure the loan. The buyer would then borrow $170,000 from the lender, and the remaining $30,000 would be covered by the mortgage insurance.
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