My Home's Appraisal Came in Low! What Now?

After a few years of paying off debt, saving money, hoping, wishing, and dreaming, I am finally waiting on a mortgage closing. Thankfully, my road to homeownership hasn't been as bumpy as I feared, despite 2024's difficult market -- I credit this to having whipped my finances into shape ahead of time and choosing to work with an experienced real estate agent who has been my rock through this entire process.

But one little hiccup I did encounter was the appraisal on my prospective new home coming back lower than the price I agreed to pay for it. This is a problem, because a mortgage hinges on a home appraisal -- a mortgage lender will not loan you more money than a home is worth.

In my case, thankfully, the difference between the appraised value and my purchase price was just a few hundred dollars. But what if the value you get from your appraisal is thousands less than you intend to pay? Here are your options when you have a low appraisal.

Get a larger mortgage

If your offer wasn't at the absolute top of your budget and the appraisal shortfall doesn't result in needing a larger mortgage than your lender will give you, you could borrow more money to make up the difference. This is one great reason not to borrow as much money in the beginning as the lender says you qualify for, to give yourself more wiggle room in case of a low appraisal. If the lender is willing to let you borrow more to make up for the shortfall (and doing so won't put you outside the lender's required loan-to-value rules), then this can be a good option.

This was technically an option for me, as I am putting down 10% to buy the house (and with my credit and income, I qualified to make a smaller down payment). But I decided against it -- borrowing a larger amount means paying more interest, and current mortgage rates are already going to make my monthly mortgage payment higher than I wanted.

Increase your down payment

This is what I'm doing to cope with a low appraisal. I agreed to tack a few hundred extra dollars onto my down payment to cover the difference. And while I did have to re-sign paperwork with my mortgage lender, it was a fairly painless solution. (Made possible by the fact that I hit my original savings target to buy a home and then just kept right on saving -- the costs of buying and owning a home are no joke, and I wanted to be prepared.)

However, if your appraisal comes back much lower than what you intend to borrow from a lender, you might not be financially able to do this.

Renegotiate with the seller

Another option you have in this situation is to see if the seller is willing to come down on the agreed-upon purchase price for their home. However, you might not have success here, especially if you're buying in a seller's market.

Unfortunately, that's right now, thanks to a stubbornly low supply of homes for sale that can be attributed to current homeowners not wanting to give up the lower mortgage rates they locked in back in 2020 and 2021. The odds are good that your seller will be able to find another buyer who can afford to put more down for a loan and therefore complete the purchase. But it doesn't hurt to ask.

Request a new appraisal

You can ask for a new appraisal if you feel the first one was off base, but there's no guarantee a second appraiser will reach a different conclusion. Plus, this will be more money you'll have to shell out. You could ask the seller to cover the cost, but again -- why would a seller do this when the odds are they can find a buyer in financial shape to buy the house anyway?

Walk away

This option stinks, but it's on the table. By the time you reach the appraisal stage of buying a home, you're likely already pretty attached to the house in question and could already be daydreaming about the quiet weekday mornings and relaxing Saturday nights you'll spend there.

But if you're at an impasse and you can't borrow more money (or add more from your savings) or get the sellers to lower the sale price, you might have to walk away from the purchase (provided your contract has this contingency). Go back to the drawing board and look for cheaper homes, if possible -- doing so might allow you to make up the difference out of your savings if another appraisal comes back low.

There's a lot of potential for bumps on the road to becoming a homeowner, and once you've had an offer accepted and formally applied for a mortgage, the appraisal is the next big hurdle. If the value of the home of your dreams comes in low, you still have options -- but just the same, I hope this isn't a problem you face.