Why a low appraisal matters to you
Your lender orders an appraisal to confirm the home is worth what you're paying. If the value comes in low, the lender typically uses the lower number to set your loan amount. The price in your contract doesn't change on its own, so the difference has to come from somewhere.
What it does to your numbers
Hypothetical example. You agree to pay $350,000 and plan to put 10% down. The appraisal comes in at $340,000. Your lender may now base the loan on $340,000, so 10% down supports a smaller loan. To keep the $350,000 price, you'd need to bring the $10,000 gap in cash on top of your down payment.
Your options
- Ask the seller to lower the price to the appraised value
- Pay the difference in cash, if you have it and still keep reserves
- Split the gap with the seller
- Ask your lender for a reconsideration of value
- Cancel under your appraisal contingency
Challenging the appraisal
If you and your agent believe the appraiser missed something, you can ask your lender for a reconsideration of value. It works best with evidence: recent, similar sales nearby that weren't used, or errors in the home's size or features. A difference of opinion alone usually isn't enough.
How your contingency protects you
An appraisal contingency in your contract usually lets you renegotiate or cancel if the home appraises below the price, with your earnest money returned. Watch the deadline. If you waived the contingency, you may have agreed to cover a gap yourself, so check your contract before deciding.
Talk with your loan consultant
A low appraisal can change your loan amount, your down payment percentage and possibly your mortgage insurance. Your loan consultant can show you how each option affects your cash to close and your payment, so you can choose with clear numbers.
