A buyer contracts to purchase a $200,000 home with an 80% loan-to-value loan, and the home appraises for $180,000. How much cash does the buyer need to pay?

To determine how much cash the buyer needs to pay, we first need to calculate the down payment and any additional costs that may arise due to the appraisal value.

The purchase price of the home is $200,000, and the buyer is obtaining a loan that covers 80% of that amount. Therefore, the loan amount would be calculated as follows:

Loan amount = 80% of $200,000 = 0.80 × $200,000 = $160,000.

Next, we also see the home appraises for $180,000. In real estate transactions, lenders usually base their loan amount on the lesser of the purchase price or the appraised value. Since the appraised value ($180,000) is lower than the purchase price ($200,000), the lender will likely only allow a loan based on the appraised value.

Calculating the loan amount based on the appraisal gives us:

Loan amount = 80% of $180,000 = 0.80 × $180,000 = $144,000.

Now to find out how much cash the buyer needs, we'll calculate the down payment. The down payment is the difference between the purchase price and the loan amount based on the appraisal.

Down payment