Nevada Real Estate Practice Exam 2026 – The All-in-One Guide to Mastering Your Real Estate License!

The term 'loan-to-value ratio' refers to the percentage of a property's appraised value or purchase price that is financed through a mortgage loan. It is a critical metric used by lenders to assess risk when approving loans. A lower loan-to-value ratio often indicates a less risky investment for the lender, as it implies that the borrower has more equity in the property. For instance, if a property is worth $200,000 and the loan amount is $160,000, the loan-to-value ratio would be 80%, meaning 80% of the property's value is financed through the loan while the borrower has 20% equity.

The other options do not accurately describe the loan-to-value ratio. The total amount of equity a homeowner has refers to the ownership stake in the property, which is not the same as the financing aspect captured by the loan-to-value ratio. The difference between the sale price and the outstanding loan amount pertains to equity calculation, not directly to how much of the property value is financed. Finally, the ratio of a borrower's debt to their income is a measure of debt-to-income ratio, which evaluates a borrower's capacity to repay a loan, rather than the relationship between the loan amount and property value.