What does a low LTV ratio indicate?

What would a low LTV ratio most likely indicate?

  1. a large down payment
  2. that the loan is an FHA loan
  3. that the borrower has a low credit score
  4. a fixed rate note

The answer is A.

The LTV ratio or Loan-To-Value ratio is exactly what its name says – it is the value of the loan over the total appraised value of the property.  Note that it’s the appraised value of the property that’s used in determining the LTV ratio and not the value that the property actually sold for.

Since a larger loan would give us a larger LTV ratio, a low LTV ratio must mean that the loan is small when compared to the appraised value of the property.  A small loan must mean that a large down payment was made – so the answer is A.