California Real Estate Practice Exam

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Prepare for the California Real Estate Exam. Study with flashcards and multiple-choice questions, each question includes hints and explanations. Get ready to ace your exam!

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The lower the loan-to-value ratio, the greater the:

down payment
interest
loan amount
term

The correct answer is: down payment

A lower loan-to-value (LTV) ratio indicates that a borrower is financing a smaller proportion of the property's value with a mortgage, which directly implies that a larger portion of the purchase price has been covered by the down payment. In other words, as the LTV ratio decreases, the down payment increases. For example, if a property is worth $300,000 and the borrower obtains a loan for $240,000, the LTV ratio is 80%, meaning the down payment is $60,000. However, if the borrower only needs a loan of $210,000 for the same property, the LTV drops to 70%, demonstrating that the down payment has increased to $90,000. This reflects how a lower LTV ratio correlates with a greater down payment from the buyer, ensuring that they have more equity in the property right from the start.