The loan-to-value ratio for an FHA loan is calculated by dividing the loan amount by:

The loan-to-value ratio for an FHA loan is calculated by dividing the loan amount by:
A . the purchase price of the property.
B . the appraised value of the property.
C . the lesser of the purchase price or appraised value.
D . the purchase price, plus the mortgage insurance for FHA loans.

View Answer

Answer: C

Explanation:

For an FHA loan, the loan-to-value (LTV) ratio is calculated by dividing the loan amount by the lesser of the purchase price or appraised value of the property. This ensures that the loan amount is based on the lower of the two figures, protecting the lender from over-lending on a property that may not appraise at the agreed purchase price.

This method is consistent with FHA guidelines, ensuring that the loan is adequately secured by the property’s value.

References:

FHA Single Family Housing Policy Handbook

HUD Guidelines for FHA LTV calculations