October 31, 2021

Appraisal Gap Coverage: What to do when an appraisal is low

appraisal gap, low appraisals, what to do when an appraisal comes in low

You’ve received the pre-approval, put in an offer, and now it’s time for the appraisal. The home appraisal process protects both the buyer from paying too much and the mortgage company from lending more than what will be secured by the home. So, then, what happens if an appraisal comes in low?

Three Routes to Closing an Appraisal Gap

I. Challenge

There are actions you can take to challenge the appraisal or sales price itself. For example, you could pay for a second opinion or work with your realtor to negotiate the purchase price down.

II. Extra Cash

As mentioned above, your mortgage lender will not lend more than the house is worth (also known as writing an unsecured loan). Borrowers will often pull additional funds from their personal savings and/or negotiate seller credits in order to make up the difference between the sales price and the loan amount.

III. Appraisal Gap Coverage

Appraisal gap coverage is the solution we are focusing on in this article. Borrowers have the option to pay upfront or monthly private mortgage insurance in order to keep their loan amount the same.

How it Works

Let’s say the purchase price is $420k and you’ve saved up a 20% down payment. The total down payment amount is $84,000 and your loan-to-value ratio (LTV) is 80%.

Now, the appraisal comes in at $400k. There is a $20,000 appraisal gap. Here are the appraisal gap coverage options to help you make up for that $20,000…


Rather than bringing an extra $20,000 to the closing table, you can bring $1,377 in upfront mortgage insurance instead. The loan-to-value ratio is raised to 84%. Now, here’s the part that almost sounds too good to be true: your loan amount and monthly payment remain the same.

There is an added benefit to obtaining an 84%  vs. 80% LTV loan. The interest rate at 84% LTV almost always prices better for the lender. What that means to you, the buyer, is that there is an opportunity to use lender credits to cover at least some of the MI premium.


Rather than bringing $1,377 to the table, the premium can be financed. In short, your cash-to-close remains the same and the monthly payment is raised by only $6.09.

Peace of Mind in a Program

At the end of the day, here’s what appraisal gap coverage does: (1) provides greater buying power with less money down and (2) gives you peace of mind going into a bidding war. Knowing this, you and your realtor can make offers more confidently than ever. If you are currently or will soon be looking for a home, let’s talk.

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