Let's suppose that a lender has established a 90 percent loan-to-value ratio cutoff as one of its primary underwriting criteria. If a borrower is willing to make a down payment of $125,000 on a home recently appraised at $550,000, which of the following best describes the lender's decision on whether or not to approve the loan along this dimension?

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The lender approves the loan because the LTV ratio is less than 90 percent. The LTV ratio is calculated as the loan amount divided by the appraised value of the home. In this case, if the borrower makes a down payment of $125,000, the loan amount would be $425,000 ($550,000 - $125,000). The LTV ratio would be 77 percent ($425,000 / $550,000), which is less than the lender's 90 percent cutoff. Therefore, the loan would be approved based on this dimension.

Let's Suppose That a Lender Has Established a 90 Percent