A borrower is purchasing a home for $420,000 and makes a down payment of $63,000. What is the LTV ratio, and will PMI be required on this conventional loan?

Correct answer: LTV of 85%; PMI is required

LTV = Loan Amount / Property Value. Loan Amount = $420,000 - $63,000 = $357,000. LTV = $357,000 / $420,000 = 0.85 or 85%. Because the LTV exceeds 80%, PMI is required on this conventional loan. A 15% LTV would mean only $63,000 is borrowed, which is incorrect. An 80% LTV would require a $84,000 down payment. A 75% LTV would require a $105,000 down payment. The math clearly places this loan at 85% LTV, requiring PMI.