Kansas Real Estate Salesperson Practice Exam 2026 - Free Real Estate Practice Questions and Study Guide

A loan to value (LTV) percentage greater than 80% indicates that the borrower is financing a significant portion of the property's value with debt. In such cases, lenders typically require private mortgage insurance (PMI) as a safeguard against the increased risk associated with higher loan amounts in relation to the property value.

When the LTV exceeds 80%, it means the borrower has less than 20% equity in the home. This situation is viewed as riskier for lenders because a smaller equity cushion increases the chance of loss if the borrower defaults on the loan. Therefore, PMI is often mandated by lenders to mitigate that risk, ensuring that they can recover some of their losses based on the insurance policy, should the borrower default.

The other options do not accurately reflect the implications of having a high LTV. A high LTV does not indicate a low-risk loan or suggest significant equity for the borrower. Moreover, loans with LTVs over 80% generally do not qualify for lower interest rates, as the increased risk typically leads to higher costs or rates to compensate the lender.