Exam math
Loan to value, down payment and mortgage points
Calculate LTV on the lower of price or appraisal, then trace the down payment, point cost and estimated cash to close. The exam favorite is still the simplest rule: one point is 1% of the loan, not 1% of the price.
Your figures
For a purchase loan, LTV normally uses the lower of the purchase price or appraised value. This field makes that rule visible instead of merely mentioning it.
The principal amount being borrowed. A low appraisal does not reduce the contract price, so the buyer may need more cash.
One point is one percent of the LOAN amount, never of the purchase price. Calculating on the price is a reliable way to get this wrong.
Escrow, title, recording, appraisal and prepaid items.
Amounts already deposited plus credits that actually reduce the cash due. Use the Loan Estimate or Closing Disclosure for a real transaction.
Estimated additional cash needed
$165,500
Down payment $150,000, points $9,000.00, other closing costs $6,500, less $0 in deposits and credits. LTV is 80% using the lower of price or appraisal.
Lower of purchase price or appraised value
20% of the price
At 80% loan to value, at or below the 80% threshold, borrower-paid PMI is not normally required on a conventional purchase loan. Loan program and lender rules still control.
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How this is calculated
Loan to value is the loan divided by the lesser of the purchase price or the appraised value. That lesser-of rule matters in practice as well as on the exam: when an appraisal comes in below the contract price, the appraisal usually becomes the LTV base. The buyer may need more cash, renegotiated terms, or another permitted response under the contract and loan program.
The down payment is simply price less loan. Above 80% loan to value a conventional lender normally requires private mortgage insurance, which protects the lender rather than the borrower. For covered borrower-paid PMI loans, a borrower can request cancellation at 80% of original value, subject to the required payment history, value, and lien conditions. Automatic termination normally occurs at the scheduled 78% point if the borrower is current. Exceptions apply, and FHA mortgage insurance follows separate rules.
A point is one percent of the loan amount. Discount points buy down the interest rate, and origination points pay the lender for making the loan. Both are computed on the loan, and an exam question that gives you a price and a loan is very often checking which figure you multiply.
The surrounding material, including deeds of trust, foreclosure and the federal disclosure statutes, sits in Financing.
Common questions
How do you calculate loan to value?
For a purchase loan, divide the loan amount by the lower of the purchase price or appraised value. When an appraisal comes in below the contract price, the lower value is the LTV base while the contract price still determines how much cash the buyer must provide.
Is a point one percent of the price or the loan?
The loan. One point is one percent of the loan amount, never of the purchase price. On a $600,000 loan one point is $6,000 regardless of what the property sold for.
When is private mortgage insurance required?
Conventional purchase loans commonly require PMI above 80% LTV. It protects the lender. For covered borrower-paid PMI loans, requested cancellation at 80% of original value and automatic termination at the scheduled 78% point have payment and other conditions. Exceptions and FHA rules require separate analysis.