Which loan type is most likely to have the lowest loan-to-value ratio?

• A. FHA loan
• B. Jumbo loan
• C. Subprime loan
• D. Conventional loan

Answer: (D)

Loan-to-value ratio is the loan amount divided by the property's value, and lenders like a lower LTV because it means less risk. A lower LTV usually comes from a larger down payment, which reduces the lender’s exposure.

Conventional loans tend to have the lowest LTV because they are underwritten with standard down-payment expectations. Borrowers who put down more equity reduce the loan amount relative to value, and lenders often require PMI only above a certain LTV threshold, so the typical conventional option ends up with a smaller loan relative to the price.

FHA loans, designed to help buyers with smaller down payments, commonly have higher LTVs since you can finance a larger portion of the purchase price with mortgage insurance. Subprime loans reflect higher risk and may be structured with higher LTVs to maximize loan size for borrowers with weaker credit. Jumbo loans involve large loan amounts and typically require substantial down payments, but the exact LTV can vary; nevertheless, conventional loans are the ones where the ratio tends to be lowest due to standard down-payment practices.