I write educational posts on buying your home for the first time. I posted a book on buying for the first time here on reddit.

Saw this question on a more active sub, and wanted to share a thorough answer for anyone else wondering the same thing:

Help with Appraisal and loan to value?

We had the same offer but had loan contingency and lost the house to a $1.4m cash offer.

I’m confused regarding appraisal. Broker told my agent that they were concerned the home wouldn’t appraise. Can’t someone explain that to me?

If our offer was $1.4m with 25% down that’s a loan of $1,040,000.

If an appraisal came in at $1.2m, what’s the issue? I’m having a hard time grasping this concept.

Loan amount over appraisal in that case is 86%. That’s not gonna fly?

Conventional loan limits are at around $832,750 for 2026.

There are HCOL areas where that limit is higher.

In most areas, anything above that $832,750 will be considered a "jumbo loan"

Most jumbo loans require 80% LTV. (there are exceptions)

There are a lot of assumptions being tossed around here on my part, but if you are in a regular cost of living area, and need over the conventional loan limit, then you'd need to stay at 80% LTV. Going to 86% LTV would not work under all of these assumptions.

If your contract had an appraisal contingency, saying something like "if appraised value comes in lower, buyers have the right to cancel" then that could have made them assume that this buyer needs it.

But...

If you're in a HCOL, then the loan limits might be higher, and you'd be fine.

There are also jumbo loans out there that are willing to take higher than 80% LTV.

There are piggyback HELOCs that can serve as secondary financing to keep your 1st mortgage at 80% to avoid PMI.

The sellers made a decision with limited information, and I believe the real estate agent should have called the listing agent to discuss prior to making an offer.

The buyer agent would have likely learned about the seller's fear, and they could have structured an offer that would help calm that fear.

For anyone else reading, here's more info on appraisals coming in low.

Your options when an appraisal comes in low:

1. Bring more cash to cover the gap
2. Ask the seller to drop the price
3. Do nothing and accept the new loan terms (assuming you have more than 20% down payment)
4. Walk away (if your contract has an appraisal contingency)

More details here.

I write educational posts on buying your home for the first time. I posted a book on buying for the first time here on reddit.

Originally shared by u/SamTMortgageBroker in r/NewbHomebuyer — view the original thread.