A home was purchased with a down payment of $36,000 and a loan of $200,000. What is the loan to value ratio?

To determine the loan-to-value (LTV) ratio, you first need to understand the formula used to calculate it. The LTV ratio is calculated by taking the amount of the loan and dividing it by the total value of the property, which is the sum of the loan amount and the down payment.

In this case, the total value of the home can be calculated by adding the down payment of $36,000 to the loan amount of $200,000. This results in a total property value of $236,000.

Now, applying the formula:

LTV = (Loan Amount / Property Value) * 100

Substituting in the numbers:

LTV = ($200,000 / $236,000) * 100

Calculating this gives:

LTV = 0.8470 * 100, which equals approximately 84.70%.

Rounding to the nearest whole number gives us an LTV ratio of 85%. This indicates that the loan covers 85% of the property's value, which is why that choice is identified as the correct one. Understanding LTV is crucial since it plays a significant role in determining loan terms, interest rates, and mortgage insurance requirements.