Did Your Appraisal Come in Too Low to Get a Mortgage? Here Are Your Options

A low appraisal doesn't always derail your shot at getting a mortgage.

When you've applied for a mortgage to buy a home or to refinance an existing loan, your lender obviously considers your financial credentials when deciding whether to approve you. This means looking at your credit score and income.

But there's another factor that's crucial to loan approval: The market value of your home. That's determined by a home appraisal, which is designed to show what your home is worth on the open market.

Unfortunately, if your appraisal comes in too low, this could make it impossible to get a loan approved. That's because lenders won't loan you more than a certain percentage of what the home is worth, such as 80% or 90% of the property's market value as determined by the appraisal.

If a low appraisal happens to you, you have a few different choices to potentially get back on track with getting approved for your loan.

Don't give up on a mortgage because of a low appraisal

When your appraisal is lower than you expected, your first and best option may be to request an appeal.

Many lenders will allow this, and it simply involves asking the appraiser to reconsider the valuation of your home. You may be able to provide supporting documentation, such as pointing to comparable sales of properties similar to yours that sold for a higher amount.

An appeal may very well lead to a successful reassessment of your house that enables you to qualify for a loan after all. That's the best case scenario -- but it won't always work. And if an appeal doesn't provide the higher valuation you need, you'll need to consider other solutions.

If you're purchasing a home from a seller, rather than trying to refinance your existing home loan, you could also approach the seller with the low appraisal and see if they are willing to lower the price of the property. This could work out in your favor, since you wouldn't have to pay as much for the home.

If you have an appraisal contingency in your purchase contract which requires the home to appraise for enough in order for the sale to go through, then the seller may be willing to lower the price because otherwise you can walk away and get back any deposit.

However, the seller very well could refuse to drop the price despite what the appraisal says. And the chances of that happening are extra high right now, especially because this is a seller's market and many people are making all-cash offers or offering above the list price of homes. If the seller doesn't play ball with you, you'll need to look for another solution.

Another option would be to consider working with a different mortgage lender. That lender will have its own appraisers. It's possible those professionals will come in with a higher valuation for your home. The obvious risk here is that it's also possible that the appraisal will come in with the same valuation or even with a lower market value. In that case, you'd be out the money for the new appraisal and back to square one.

Finally, your last option may be to come up with more money. If you are paying $250,000 and the lender was willing to lend you up to 90% of the home's appraised value but the property appraises for just $200,000, you could increase the cash you're bringing to the table.

You'd have to raise the amount from $25,000 (10% of $250,000, which you planned to put down) to $70,000 (the $20,000 down payment the lender requires, plus the extra $50,000 for the seller that the lender wouldn't be willing to provide).

The best option for your situation will depend whether you are purchasing or refinancing a home, whether you have the option to walk away from a sale if the home doesn't appraise for enough, and whether or not an appeal works out for you.