Your appraisal came in low. Now what?

The arithmetic

Your lender lends against value, not against price. When the appraisal comes in below what you agreed to pay, the lender does not reduce your obligation to the seller. It reduces its own advance, and the difference becomes cash you have to find.

Work the number precisely before you do anything else. Take the appraised value, multiply by your lender's loan-to-value limit, and compare it against the mortgage you were counting on. The gap is your shortfall. Add it to the cash you had already budgeted for closing. That total is what you now need.

Your options, roughly in order of cost

Ask the lender to reconsider. Provide recent comparable sales the appraiser appears to have missed. This is free and occasionally works.

Try another lender. Appraisals are not portable between all lenders, and a second opinion sometimes lands differently. A broker can test this in days, not weeks, but it burns time you may not have.

Increase your down payment. Obvious, and unavailable to most people in this position.

Ask the seller for an title="A reduction in the purchase price agreed before closing, usually to reflect a defect or a shortfall. It must be documented properly to be enforceable.">abatement. A price reduction has to be agreed and documented properly to be effective. In a soft market, a seller facing a thin buyer pool may prefer a reduction to a failed closing and a relisting. In a firm market they will refuse.

Bridge the gap with secondary financing. A second mortgage from a B-lender or private lender covers the shortfall at a materially higher rate, with lender, broker and administration fees on top. It is expensive. It is also, in a falling market, frequently cheaper than the damages exposure from not closing at all.

Time is the constraint

Every option above takes time, and your closing date is fixed. If your closing is more than three weeks out, you have room to try the cheap options first. If it is inside a week, go straight to the ones that can actually complete.

Before you decide the deal is dead

Price out the expensive option properly before you conclude you cannot close. A shortfall that looks catastrophic often turns out to be a second mortgage with a two-year term and a refinance at the end of it.

Compare that cost against what a seller can claim if you fail to complete, which in a falling market is the difference between your price and their eventual resale price plus carrying costs. The comparison surprises people.