When it comes to going through the mortgage process, getting an appraisal is a big deal. After all, it helps make sure you’re not paying too much for a property. From the standpoint of your homebuying transaction, lenders aren’t allowed to loan more than a house is worth.
Because jumbo loans involve a larger transaction amount than traditional mortgages, the appraisal often undergoes special scrutiny. If your loan amount is high enough, it could even require two appraisals. The good news is that the loan limit for which you’ll need a second appraisal has risen in many cases.
Depending on which loan you qualify for, the threshold for a second appraisal has gone up to $1.5 million from a previous limit of $1 million. This could be good news if you’re looking to buy or refinance, because the removal of any hurdle makes the process easier and faster.
But before we get there, let’s take a moment to go over some of the basics that are common to any appraisal.
The appraiser has two jobs when it comes to evaluating a house. They need to place a value on the house and also check for certain health and safety standards.
Placing a Value on a Home
When you get an appraisal, an appraiser walks through your home to evaluate its features. It’s then put up against “comparables.” What that means is that if you have a three-bedroom ranch, your house is evaluated against other three-bedroom ranches in the area.
In addition to the basics, they may also take into consideration special features of your home, like an in-ground pool or sunroom. These features are noted, but in order to get the most value out of them, other sellers in your area need to have seen an increased sale amount because of that special feature.
There’s more information on appraisal valuations, but for now, let’s move on to the appraiser’s other responsibility.
Health and Safety
In addition to placing a valuation on the house, the appraiser needs to make sure the house passes some basic health, safety and livability guidelines. While appraisers are generally looking for anything that could be a potential hazard, the FHA has its own guidelines.
The lead paint used in houses built before 1979 is considered a hazard because chipping lead paint poses serious long-term health risks, including lead poisoning.
In addition to the lead paint, there are a variety of things appraisers have to look for that apply in every loan scenario.
Here are a few common safety and livability issues appraisers consider:
- Water, electricity and any installed air conditioning units should be working.
- There shouldn’t be cracks in walls or ceilings, and roofs should be in working condition.
- If there is evidence of water damage, it has to be remediated.
- Foundation damage should be fixed.
- Stairwells must have handrails. This also applies to the steps of porches and decks.
Jumbo Appraisal Changes
When it comes to appraisals, jumbo loans (for one-unit properties, generally loan amounts above $548,250, but could be higher in high-cost areas) sometimes require two appraisals.
But for many jumbo loans, this limit has gone up from $1 million to $1.5 million, which is good for several reasons:
It’s going to lead to a more streamlined loan process because you don’t need to wait around for a second appraisal. This will help you get into your home or get your goals accomplished faster.
It’s also less costly because you don’t have to worry about paying for two appraisals, which will save you money on lending fees.
Finally, your loan is less likely to run into problems because of a low appraisal value. When two appraisals are required, the lender must go with the lower one. One appraisal creates fewer hurdles. In the vast majority of cases, only one appraisal will be required.
Things to Be Aware Of
This is great news, but there are a couple of other things clients should know going into the mortgage process.
Even if your appraised value is under $1.5 million, the appraisal will have to pass a third-party review because of the higher amounts associated with jumbo loans.
Finally, VA jumbo loans require that a second appraisal be done if the loan amount is over $1 million. However, in many cases, those getting a VA loan won’t have to pay for the second appraisal.
Are you interested in a jumbo loan? You can get started online with a purchase preapproval or refinance approval. One of our Home Loan Experts would be happy to help if you give us a call at (800) 785-4788. If you have any questions, you can let us know in the comments below.
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