How does an appraisal affect the borrower's mortgage options?

An appraisal plays a crucial role in the mortgage process, particularly in determining the loan-to-value (LTV) ratio. The LTV ratio is calculated by taking the loan amount and dividing it by the appraised value of the property. This ratio is significant because it helps lenders assess the risk associated with a loan.

A higher appraised value can lead to a lower LTV ratio, which may result in better mortgage terms for the borrower, such as lower interest rates or the ability to avoid private mortgage insurance (PMI). Conversely, if the appraisal comes in lower than expected, the LTV ratio will be higher, which can limit the borrower's options, possibly leading to a required increase in down payment or adjustment of loan terms.

In this context, the correct answer highlights how the appraisal directly impacts the LTV ratio, which is a key consideration for lenders when approving a mortgage loan.