An appraisal gap is the difference between what you agree to pay for a home and what it’s appraised for. If you offer $500,000 but the home appraises at $485,000, that’s a $15,000 appraisal gap. Because mortgage lenders generally calculate your loan-to-value ratio using the lower value, a low appraisal can affect your mortgage costs or how much cash you need to close. But it doesn’t automatically mean you have to pay the entire difference.
What is an appraisal gap, and why does it happen?
An appraisal gap happens when a home’s appraised value is lower than the agreed purchase price. This can occur in competitive markets where buyers offer more than recent comparable sales support, or when an appraiser values a home’s condition or features differently than expected.
An appraisal is an independent assessment of the property’s value, used by lenders to help determine how much they’re willing to lend. A low appraisal doesn’t automatically change your agreed purchase price.
Instead, you may need to negotiate with the seller, adjust your financing, challenge the appraisal or use a contractual option to exit the purchase.
How much does an appraisal gap cost you?
A low appraisal doesn’t always require more cash. It depends on how much you’re borrowing and whether your lender will approve changes to the loan.
Take a $500,000 purchase with 10% down that appraises at $485,000. The appraisal gap is $15,000, but you may have two financing options if the seller won’t lower the price.
| Original plan | Option A: Keep loan amount | Option B: Keep 90% LTV | |
| Loan amount | $450,000 | $450,000 | $436,500 |
| LTV | 90.0% | 92.8% | 90.0% |
| Your cash toward the price | $50,000 | $50,000 | $63,500 |
| Additional cash needed | — | $0 | $13,500 |
Keeping your original loan amount (Option A) means no additional cash toward the purchase price, but your higher LTV could affect mortgage costs or eligibility. Keeping your original 90% LTV (Option B) requires another $13,500 toward the price.
In this example, maintaining your original LTV means paying 90% of the appraisal gap in additional cash, not the entire $15,000.
These are illustrative scenarios assuming the purchase price stays unchanged. Your lender must approve any loan changes, and actual closing costs may vary.
Why crossing 90% LTV matters
Even a small appraisal gap can change your mortgage costs if it pushes your LTV above 90%. Under Fannie Mae’s conventional loan rules:
- Mortgage insurance: Standard required mortgage insurance coverage increases above 90% LTV on standard loans. Alternative minimum coverage with pricing adjustments may be available.
- Mortgage pricing: Loan-level price adjustments vary by LTV and other factors.
- Seller credits: The maximum financing concession drops from 6% to 3% of the lower property value for an eligible primary-residence loan.
In the example above, that reduces the maximum permitted seller financing concession from $29,100 at 90% LTV to $14,550 above 90% LTV. These are limits, not amounts the seller must provide. Seller credits can cover eligible closing costs, but not your down payment.
Who pays an appraisal gap?
Neither the buyer nor seller automatically has to cover the entire gap. What happens depends on your negotiations and the protections in your purchase contract.
| Contract term | What happens if the appraisal comes in low |
| Appraisal contingency | You may be able to renegotiate or cancel without losing earnest money, subject to the contract’s conditions and deadlines. |
| Appraisal gap clause | You promise to cover part or all of the difference, potentially before knowing its size. |
| Waived appraisal contingency | You generally lose the right to cancel solely under that contingency, although other contract protections may apply. |
| FHA amendatory clause or VA escape clause | These protections generally allow buyers in covered transactions to decline to proceed without forfeiting earnest money when the appraisal is below the contract price. |
Contract language varies by state. Review appraisal contingencies and gap clauses with your agent and, where appropriate, a real estate attorney before signing.
What to do if your home appraisal comes in low
If you’re already under contract, act quickly. Your purchase agreement may give you only a limited time to respond.
1. Get the appraisal and check your deadline
For a first-lien mortgage, your lender generally must provide a free copy of the appraisal promptly upon completion or at least three business days before closing, whichever comes first, unless you validly waive that timing requirement under the CFPB’s appraisal delivery rule.
Check your appraisal contingency deadline immediately. That deadline comes from your contract, not your lender.
2. Request a reconsideration of value if the evidence supports it
A reconsideration of value (ROV) asks the appraiser to correct errors or consider overlooked information, such as incorrect square footage or better comparable sales.
Under Fannie Mae’s requirements, borrowers may initiate one ROV per appraisal through their lender. The request must be made before closing, and the value may remain unchanged.
The 21st Century ROAD to Housing Act, enacted July 11, 2026, also requires FHFA, FHA, VA and USDA to establish and maintain requirements for lender processes to review consumer-initiated appraisal reconsiderations on federally backed mortgages. Each agency is responsible for implementing those requirements.
Ask your lender for its ROV form and timeline. A review doesn’t automatically extend your contract deadline.
3. Negotiate, adjust your loan, or exit
If the appraisal doesn’t change, you can ask the seller to lower the price, negotiate a split, or explore whether your lender can adjust the loan.
If you can’t reach an agreement, an applicable appraisal contingency or FHA or VA protection may allow you to cancel and recover your earnest money. Without a clear contractual exit, consult your agent or an attorney before deciding what to do.
Before you offer: Appraisal gap coverage vs. Tomo Mortgage Appraisal Coverage
An appraisal gap clause is your promise to the seller to cover some or all of a low appraisal. Tomo Mortgage Appraisal Coverage is a separate lender feature that protects eligible borrowers from certain adverse loan-term changes caused by a low appraisal.
| Appraisal gap clause | Tomo Mortgage Appraisal Coverage | |
| Who makes the commitment? | You, to the seller | Tomo Mortgage, to eligible borrowers |
| When is it arranged? | When you write the offer | Before you make the offer |
| Does it replace your appraisal contingency? | No | No |
As of October 30, 2026, Tomo Mortgage’s published terms say Appraisal Coverage protects eligible borrowers’ loan product, cash to close, APR and monthly payment from specified adverse changes caused by a low appraisal.
Specifically, the combined amount of your down payment, loan fees in Boxes A and B of your Loan Estimate, and lender credits is protected from increasing because of the low appraisal. The principal, interest and mortgage insurance components of your monthly payment are also protected from increasing for that reason. Property taxes and homeowners insurance can still change.
Who can qualify for Tomo Mortgage Appraisal Coverage?
Coverage applies to eligible conforming loans on qualifying primary residences. The published terms require borrowers to obtain Tomo Mortgage preapproval and have their property address and intended offer price reviewed before submitting an offer. Minimum down payment, property and transaction requirements also apply.
Tomo Mortgage’s public FAQ additionally lists working with a Tomo Mortgage partner real estate agent who verifies the property address before an offer. Review the published eligibility information before relying on coverage.
Keep your appraisal contingency if possible. Even with Appraisal Coverage, it may preserve your option to renegotiate or walk away.
And ask whether your loan may qualify for Appraisal Coverage. Eligibility requirements and terms apply.
As of October 30, 2026, Tomo Mortgage lends in 40 states and Washington, D.C. If you’re outside Tomo Mortgage’s service area, use the guidance above to discuss your appraisal-gap options with a lender licensed in your state.
Tomo Mortgage, LLC, NMLS #2059741. Equal Housing Lender.
Frequently asked questions
What does a $5,000 appraisal gap mean?
A $5,000 appraisal gap means a home appraised $5,000 below your agreed purchase price. It doesn’t automatically mean you owe another $5,000.
On a $500,000 purchase with 10% down, preserving your original 90% LTV would require another $4,500 toward the price. Keeping the original loan amount wouldn’t require additional cash toward the price but would push LTV above 90%, subject to lender approval.
How much of an appraisal gap should I offer to cover?
No more than you could comfortably pay in cash after accounting for your down payment, closing costs and emergency savings. Offering gap coverage may strengthen your offer, but it also increases your risk of paying more than the appraised value. Consider limiting the amount you’re willing to cover.