Whether you're a first-time homebuyer or a seasoned property investor, the phrase "your appraisal came in low" is one of the worst things you could hear. 

After all, getting an accurate value on your potential property is an essential part of your home-buying journey. Since jumbo loan appraisals often exceed typical requirements, they create additional buyer stress and confusion. 

So what exactly goes into the jumbo loan appraisal process that differentiates it from traditional appraisals? We're here to demystify the whole process so you'll know just what to expect.

TLDR Key Takeaways

• While jumbo loan appraisals have some different requirements, they follow a similar process—an appraisal is requested, an inspection is done, and a home's value is determined. 
• Jumbo loan appraisals typically require a more detailed inspection, the use of appraisers with high-end real estate experience, and, in some cases, two appraisals.

How Does a Jumbo Loan Appraisal Work?

The appraisal process is an integral part of your jumbo loan because it helps lenders:

• Calculate the value of property used as collateral
• Determine whether or not to approve the loan 
• Establish the loan's terms, including the interest rate and the loan-to-value ratio

No matter what type of mortgage loan you are applying for, you'll need an appraisal; however, jumbo loan appraisals are often more detailed and require a more in-depth inspection than others—and in some cases, you'll need two appraisals. 

Here's how they work:

Set-Up

To start the appraisal process, the bank will select a licensed appraiser who's familiar with high-end real estate to complete an inspection of the property. 

This appraiser will contact the seller to set up a date and time to conduct their walkthrough.

Conducting the Appraisal

On the date of the agreed-upon inspection, the appraiser will:

• Evaluate the home's condition both inside and outside, including structural soundness
• Take pictures of the home and property
• Make note of any upgrades or improvements since the last appraisal
• Check for any safety concerns
• Test out the appliances
• Annotate all finishes, fixtures, and features in the home

Following the walkthrough, the appraiser researches comparable homes (comps) in the area. These properties have similar size, location, and features to the property being appraised.  

Comps are typically derived from recently sold homes; however, in some cases, homes currently available on the market can also be used to show market conditions and trends. 

For example, if a comparable home sold in your neighborhood three months ago for $750,000, but all active comp listings are priced in the $950,000 range, the appraiser would take that into consideration when determining a fair market value for the property.

Once they've gathered all the necessary information, they draft a report that establishes the appraisal value and sends this information to the bank.

Results

With the appraisal in hand, lenders have all the information they need to determine whether or not to approve the jumbo loan. 

If the appraisal comes in lower than the purchase price, the borrower is notified and must come up with additional funds to cover the agreement. 

Note: When there are two appraisals on a jumbo loan, the lender has to go with the lower one.

Jumbo Loan Appraisal vs. Traditional Mortgage Appraisal: What's the Difference?

Generally, all loan types go through the same appraisal process described above. That being said, there are slight differences for jumbo loan appraisals.

Since jumbo loans exceed the conforming loan limits set by the FHFA, lenders tend to take extra precautions to ensure that they aren't lending out more than the property is worth.

Here's what that means for these potential borrowers:

• The appraisal process is more detailed than traditional mortgages
• Requires appraisers who have experience with similar properties or that have special certifications
• Two appraisals are required for loans that meet or exceed certain amounts 
• Closing dates can be pushed if two appraisals are needed

Note: If you seek a jumbo construction loan, the appraisal process will look slightly different, but you should still expect to go through the appraisal process twice: before and after construction.

Jumbo Loan Appraisal Requirements

While the particular requirements may vary depending on the lender, most jumbo appraisals require:

• An Experienced Appraiser: The appraiser must be licensed in the state where the property is located and must have experience valuing properties of the same kind.
• Detailed Inspection: A thorough inspection of the property is necessary to document the condition, features, size, and safety of the property.
• Photographs: Photographs of the property are needed to support the appraiser's documentation.
• Comp Research: Active comps and recent sales are used to determine the property's value.
• Final Report: A written report containing details about the property, the comps used to determine the value, and the appraiser's final valuation will be provided to the lender.

Special Note: Two appraisals are required for 95% loans, VA jumbo loans that exceed $1 million, and any jumbo loan valued at $1.5 million or more.

Find Your Perfect Jumbo Loan Solution with MDL

As housing prices continue to increase, jumbo loans are becoming routine options for many potential home buyers. 

The only problem is these larger value properties come with stricter qualification thresholds that some borrowers struggle to meet. At Modern Day Lending, we say yes when big banks say no.

Our mortgage experts have years of experience and understand the complexities of jumbo loan financing. We'll guide you through the entire process and ensure you get the best rates and terms for your loan. 

Here's what you'll need to bring to the table:

• Two years' worth of tax returns, W2s, or bank statements
• Personal asset statements covering the most recent two months
• Minimum credit score of 620
• DTI lower than 50%
• Driver's License 
• Year-to-date profit and loss statement, if you're self-employed

Contact one of our mortgage specialists and turn your dreams of homeownership into reality.