A low appraisal is a negotiation point, and it usually ends with a deal that still closes. The reason it matters is how the loan is sized. Every program sets your maximum loan as a percentage of the lower of two numbers: the contract price or the appraised value. When the value comes in under the price, the loan shrinks and the difference has to come from somewhere.
Why a low appraisal changes your loan
Your loan-to-value ratio (LTV, the loan amount divided by the home's value) is capped by the program. FHA allows 96.5% at a 580 score or higher, Conventional allows up to 97% on a single-family home through first-time buyer programs, and VA allows 100% for eligible veterans. The lender applies that cap to the appraised value whenever it's below the price. Your income and debts stay where they were. The loan amount is what moves.
A $350,000 contract that appraises at $340,000
Here's an FHA buyer who planned on 3.5% down, or $12,250, with a base loan of $337,750. The appraisal comes back at $340,000. FHA's maximum base loan is now 96.5% of $340,000, which is $328,100.
| Outcome | Price | Base loan | Cash for the down payment |
|---|---|---|---|
| Original plan | $350,000 | $337,750 | $12,250 |
| Buyer covers the full gap | $350,000 | $328,100 | $21,900 |
| Seller drops the price to the value | $340,000 | $328,100 | $11,900 |
| Buyer and seller split the gap | $345,000 | $328,100 | $16,900 |
If the buyer covers the full gap, the down payment rises by $9,650. If the seller drops to the appraised value, the buyer actually needs $350 less than planned. A split lands in the middle at $4,650 more. The appraisal also helps the buyer's case, since the next buyer's lender will likely see the same comparable sales.
Your options when the value comes in short
Renegotiate the price. This is the most common outcome. Your agent sends the seller the appraisal and asks for a price at or near the value.
Cover the gap with cash or a gift. The extra amount counts as down payment, so it can come from your savings or from a gift from a family member, documented with a gift letter. Seller credits can't cover it, since they're limited to closing costs and prepaids.
Ask for a reconsideration of value (ROV). This is a written request, sent through your lender, asking the appraiser to review sales the report missed or got wrong. HUD's Mortgagee Letter 2024-07 requires FHA lenders to offer borrowers this process and lets you submit up to five comparable sales with the request, and Fannie Mae has its own reconsideration process for Conventional loans. The request has to be settled before closing, and the best comparables are recent, nearby and similar in size and condition. On VA loans, the appraiser contacts the lender before finalizing a low value under VA's Tidewater process, which gives your side a short window to send more sales.
Cancel and keep your earnest money. FHA requires an amendatory clause in the sales contract, and VA requires a similar escape clause. Both say you don't have to complete the purchase or lose your deposit if the appraised value is below the price, while still letting you go ahead at the contract price if you want the home anyway. On a Conventional loan, your protection comes from the appraisal or financing contingency in your contract, so watch its deadline.
How to protect yourself before the appraiser shows up
- Ask your agent for recent sales of similar homes before you write the offer, and offer near what they support.
- Read the appraisal and financing contingency deadlines in your contract and put them on your calendar.
- Keep a cushion of savings, or line up a family gift in advance, so covering part of a gap stays an option.
- Run the price through the price check tool to see the down payment and payment at a lower value.
If an appraisal just came back short, call AAA Capital Funding at 888-601-8344. We'll run the loan at the appraised value, show you the cash each option takes and help your agent put together a reconsideration request when the comparable sales support one.