Steps to Take if Your Appraisal Comes in Low

House hunters sometimes face a curveball when the appraisal for a home they want to buy with an FHA mortgage is lower than the offer.

Is this a deal-breaker? Believe it or not, it isn't the end of the road. A low appraisal can sometimes be just a bump in the road. In other cases, you may wish to walk away from the deal. Here's your game plan to navigate this situation:

Step 1: Understand Why

Do you know why the FHA requires an appraisal in the first place? They're backing your loan, often because you have a smaller down payment or less-than-perfect credit. The appraisal ensures the property is worth the loan amount and has a remaining economic life for the duration of the mortgage.

Step 2: Details, Details

Ask your lender for a copy of the appraisal report. Understand the appraiser's reasoning and the comparable sales they used. This info is key for your next steps.

Step 3: Talk to the Seller

This is often your best first move. Show the seller the appraisal report and explain that the FHA loan will only cover the appraised value. Ask them to lower the price.
Any other VA or FHA buyer will likely face the same issue. They might agree to keep the deal alive, especially if they need to move. Be open to meeting in the middle, but know your limit.

Step 4: Consider Paying the Difference

Do you love the house? Can you afford to pay the difference in cash? But think this through. Can you afford it without hurting your finances? Is the home worth more than the appraised value in the local market?

Step 5: Challenge the First Appraisal

Work with your agent to find recent sales of similar homes that sold for more than the appraised value. Give this data to your lender. They might ask the original appraiser to reconsider. Appraisals are typically done a second time only due to deficiencies in the original. You can't contest an appraisal just because you don't like the dollar amount.

Step 6: Know When to Walk Away

If the seller won't budge, you can't pay the extra, and the appraisal challenges don't work, it might be time to walk. FHA loans allow this without penalty.

Step 8: Other Options?

Chat with your lender about other loan types. Maybe there's something with different appraisal rules. But if the house is truly overpriced for the local market, this might not solve the core issue.

Your Bottom Line:

A low FHA appraisal isn't the end of the world. Stay calm, get informed, and work with your agent and lender. Your best bet is usually to try and negotiate with the seller. Know your finances and your contract, and don't be afraid to walk away if it's not the right deal for you in the local market.