Appraisal gap

The appraisal came in low. Now what?

Your lender lends against the lower of the purchase price or the appraised value. So when the appraisal comes in short and you don't bring extra cash, your loan-to-value goes up — and with it, your mortgage insurance. Here's exactly what that costs, and how it compares to your other two options.

How it works

Three ways to handle a gap.

Example: $450,000 price, 10% down, appraisal comes in $15,000 low at $435,000.

1

Keep your cash

Same down payment, same loan amount. But that loan is now measured against $435,000, so your LTV rises from 90% to about 93% — a higher PMI tier. No extra money at closing; a higher payment every month until PMI drops off.

2

Cover the gap

Bring the $15,000 difference as extra down payment. Your loan amount drops, your LTV stays at 90%, and your PMI doesn't change. The most cash now, the lowest payment later.

3

Renegotiate the price

Seller drops the price to the appraised value (or meets you partway). Your 10% down now buys a $435,000 home: smaller loan, same LTV, lowest payment of the three. Your appraisal contingency is the lever here.

Conventional loans. PMI is priced in tiers by LTV at closing, so a gap that pushes you from one tier to the next (say, 90% to 90.01%) can change the rate more than the gap itself suggests.

Calculator

Run your own numbers.

$
%

= $45,000

$

Appraised value = $435,000

%
1 · Keep your cash2 · Cover the gap3 · Price cut to appraisal
If you keep your cash the same
+$0/mo
more mortgage insurance
LTV at offer: 0%After appraisal: 0%
Loan amount (unchanged)$0
Est. PMI before → after$0 → $0
PMI tier—
Monthly P&I + PMI$0
Extra PMI per year$0
Extra PMI until it drops off$0

Conventional loan estimate, 760+ credit. Excludes taxes, insurance and HOA.

Good to know

Quick answers.

Why does a low appraisal raise my PMI?
Mortgage insurance is priced by loan-to-value, and LTV uses the lower of price or appraised value. Same loan, smaller value, higher LTV. PMI is tiered (roughly 80–85%, 85–90%, 90–95%, 95–97%), so crossing a tier line is what moves the number.
Do I have to bring more money to closing?
Not necessarily. If your new LTV is still within the program maximum (97% for most conventional loans), the loan can proceed at the same amount with higher PMI. If the gap pushes you past the maximum, you'll need to add cash, renegotiate, or walk away under your appraisal contingency.
Does the seller have to lower the price?
No. It's a negotiation. Many Wisconsin contracts include an appraisal contingency that lets you walk if the value comes in short — that's your leverage. Sellers often meet buyers partway rather than go back to market. More in what happens when a home appraises below your offer.
When does the extra PMI go away?
On a conventional loan you can request cancellation at 80% of the original value, and it ends automatically at 78%. "Original value" is the appraised value when it's lower than the price, so a gap also pushes the drop-off date out a bit. You can also get a new appraisal later if the home has gained value.
What about FHA, VA or USDA?
This calculator models conventional PMI. FHA mortgage insurance is a flat annual rate above 90% LTV, VA has no monthly MI, and USDA's annual fee doesn't change with LTV — so for those programs a gap is mostly a cash question, not a PMI question. Ask me to run your actual program.

Appraisal just came back?

Let's pick the option that costs you least.

Send me the appraisal and the contract and I'll run all three scenarios on your real loan — usually the same business day.

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