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Real Estate Math Video #1 - Loan to Value Ratio (LTV) | Real Estate Exam Prep - YouTube
Channel: The Real Estate Classroom
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hey everyone my name is paul pacheski
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and welcome to the real estate classroom
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youtube channel
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in today's video we're going to start
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video number one of a series of 15 or 16
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videos on real estate math in today's
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video
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it is loan to value ratios so let's get
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to the video
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[Music]
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okay so in today's video we're going to
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discuss a concept known as
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loan to value ratio it's a math equation
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that you have to know for your real
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estate licensing exam
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but before we get to that do me a favor
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give this video a thumbs up hit that red
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subscribe button click on the
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notification bell i would appreciate it
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comments questions down below
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all right so a loan to value ratio is a
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calculation that lenders
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use to determine how much risk
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they are willing to take by providing
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you
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a loan or a mortgage it basically
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measures the relationship between the
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loan amount
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and the value of the property or the
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asset
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all right and typically we hear of loan
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to value ratios when we're purchasing
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a home and a bank may have a minimum
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loan to value ratio
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and i'm going to show you how we get
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that loan to value
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ratio as you can see on your screen
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the formula is pretty simple it is the
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loan
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divided by the value of the property
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that gives us
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our ratio or what we call that ltv
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which is an acronym for loan to value
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ratio another way that you may see it on
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your exam is
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the debt divided by the value of the
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home
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equals a ratio or you may see the debt
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divided by the appraised value of the
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home
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so what you have to know is there's two
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raw numbers there is
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the debt which a loan on the property is
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a debt divided by
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a value whether it's expressed as an
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appraised value a purchase price
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or it just says value equals that that
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ratio now understand that the higher the
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ltv
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is the more risk that the lender is
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assuming
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and that can also increase the closing
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cost that a purchaser may pay
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so let's take a look at a couple of
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example problems you may see
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on your exam number one tom obtains a
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loan to purchase a property for two
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hundred and fifty thousand dollars he is
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putting down
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fifty thousand dollars is a down payment
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what is the loan to value ratio so this
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question gives us a couple of key
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numbers that we have to know number one
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we know that the value or the purchase
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price
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is 250 000 and we also know that tom is
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putting 50 000
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down and that's going to help us with
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the calculations so
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there are two steps to this particular
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type of property number one
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we need to calculate what the loan
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amount is remember
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loan to value we've already got the
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value
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that's 250 000. but what's the loan
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amount well
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how we figure that out is we take the
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sale price of 250 000
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and we minus the down payment which is
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50 thousand
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that gives us the loan amount of
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two hundred thousand dollars
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step two is
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we take the loan remember the formula
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is loan divided by value equals ratio so
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in this case we take the
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loan amount or the debt which is 200 000
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we divide it by the the value or the
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purchase price which is 250 000
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that gives us decimal eight zero
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or when we express decimal eight zero
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in a percentage format that becomes
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eighty percent
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so the question wants to know what is
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the loan to value ratio
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it is an 80 ltv
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or 80 percent loan to value now i threw
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in another question a practice question
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here because sometimes
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the licensing exam may express it in
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this way
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the problem means the loan is 400
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000 and the loan to value ratio is 80
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what is the sale price or the value of
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the property
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remember so in this case we're going to
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use a formula where it's the debt
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divided by the loan
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to value ratio equals the sale price
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and when we do that we take the 400
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000 which is the amount that the
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question told us the the buyer
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is going to borrow or the borrower is
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going to borrow and we have the ltv
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which is 80
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so we take 400 000 divided by 80
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hit the percent key or if you have a
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simple
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calculator we would take four hundred
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thousand divided by
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decimal eight zero that gives us a sale
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price
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of five hundred thousand dollars
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so those are the the two types of loan
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to value
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real estate math calculations that
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you're more than likely to see
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on your real estate licensing exam
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all right if you want to continue
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watching more videos on real estate math
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and how to calculate them
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hit that that little square to my right
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here by the way if you have not
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subscribed to the channel please do so
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click the little circle to my left and
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as always if you have comments or
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questions put them down below in the
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comment section i would appreciate it
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i'll see you in video number two on real
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estate
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math see you then
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