Which statement about LTV and loan qualification is true?

Which statement about LTV and loan qualification is true?

• A. Higher LTV reduces risk to the lender.
• B. Higher LTV indicates higher risk and may require mortgage insurance, and can affect rate and approval.
• C. LTV has no impact on rate.
• D. LTV only affects appraisal values.

Answer: (B)

LTV shows how much of the property's value is being financed. When you borrow a larger portion of the price, the lender has less borrower equity and a smaller cushion if the market drops or payments slip, which means more risk for the lender. Because of that risk, high LTVs often trigger mortgage insurance requirements and can influence how the loan is priced and whether it gets approved at all. In practice, a higher LTV tends to lead to a higher interest rate or more stringent underwriting, and it’s a key factor lenders consider during qualification. LTV does relate to appraisal in that the appraisal helps determine the value used in the calculation, but the main point for qualification is that higher LTV equates to higher risk, possible mortgage insurance, and potential impact on rate and approval.

LTV shows how much of the property's value is being financed. When you borrow a larger portion of the price, the lender has less borrower equity and a smaller cushion if the market drops or payments slip, which means more risk for the lender. Because of that risk, high LTVs often trigger mortgage insurance requirements and can influence how the loan is priced and whether it gets approved at all. In practice, a higher LTV tends to lead to a higher interest rate or more stringent underwriting, and it’s a key factor lenders consider during qualification. LTV does relate to appraisal in that the appraisal helps determine the value used in the calculation, but the main point for qualification is that higher LTV equates to higher risk, possible mortgage insurance, and potential impact on rate and approval.