If a lender determines that a homebuyer can afford to borrow $120,000 with an 80% loan to value ratio, what maximum property price can the borrower afford?

To find the maximum property price a borrower can afford with a loan amount of $120,000 and an 80% loan to value (LTV) ratio, we need to understand what the LTV ratio represents. The LTV ratio indicates the percentage of the property's value that is being financed by the loan. In this case, an 80% LTV means that the loan amount is 80% of the total property value.

To calculate the maximum property price, we can use the formula:

Loan Amount = LTV Ratio × Property Value

Rearranging this formula to solve for Property Value gives us:

Property Value = Loan Amount / LTV Ratio

Substituting the given values into the equation:

Property Value = $120,000 / 0.80

Calculating this, we get:

Property Value = $150,000

This means that if the lender is willing to provide a loan of $120,000, which constitutes 80% of the total property value, the maximum property price the borrower can afford is indeed $150,000. This provides a clear link between the loan amount and the property's total worth based on the LTV ratio established.