Overview

Lenders rely on recent home appraisals to confirm the property’s market value before funding a mortgage. The appraisal affects the loan-to-value ratio, mortgage insurance requirements, and whether the lender must adjust loan terms or pause closing. Policies and options vary by loan program (conventional, FHA, VA) and by market volatility.

Background and why appraisals matter

Appraisals became more standardized after the 2008 crisis to reduce inflated valuations and protect lenders and borrowers. Appraisers follow professional standards (Uniform Standards of Professional Appraisal Practice) and lender/agency rules (Fannie Mae, Freddie Mac, FHA). For an accessible overview of the appraisal role, see the Consumer Financial Protection Bureau (CFPB) guidance on appraisals (https://www.consumerfinance.gov).

How it works at closing

  • Ordering: The lender generally orders an appraisal after loan application or after contract acceptance.
  • Timing: Lenders want a recent appraisal; many underwriting systems consider appraisals dated within roughly 90–120 days acceptable, but requirements vary by investor and market conditions.
  • Output: The appraiser produces an opinion of market value, supporting photos, and comparable sales (comps).
  • Lender use: Underwriting uses the appraisal to set LTV and determine if mortgage insurance or rate adjustments are required.

If the appraisal comes in below the sales price, typical lender responses include:

  • Requiring the buyer to bring additional cash to maintain the agreed LTV.
  • Asking seller to reduce the price to the appraised value.
  • Ordering a review or a second appraisal in limited circumstances.
  • Applying program-specific solutions (for example, appraisal waivers for some conventional loans) — see Fannie Mae and Freddie Mac rules for current waiver guidance.

In my practice I’ve seen lenders accept appraisals older than 90 days only when the market is stable and the investor permits it; otherwise underwriters often require a new appraisal or a desktop update.

Real-world examples

  • Example 1: Offer $350,000; appraisal $340,000. The lender reduced the insurable loan to the appraised value; the buyer covered the $10,000 gap to keep the original purchase price.
  • Example 2: Condo listed $250,000; appraisal $245,000. To keep the same loan amount, the buyer added $5,000 to the down payment so the LTV met the lender’s 80% requirement.

Who is affected

  • Buyers: May need extra funds or negotiation leverage if appraisals are low.
  • Sellers: Might face delays or price concessions if an appraisal does not support the listing price.
  • Lenders and underwriters: Use appraisals to manage credit risk and comply with investor rules.

Practical tips for borrowers and sellers

  1. Communicate early with your lender about appraisal timelines and investor rules.
  2. Provide the appraiser with a short list of recent comparable sales, permits, and upgrades (don’t coach value; share facts).
  3. Be prepared with alternatives: higher down payment, seller concession, or asking for an appraisal review.
  4. Ask your lender whether an appraisal waiver or automated valuation is available for your file (program-dependent).
  5. If you disagree with an appraisal, collect new comparables and request a factual review from the lender — have realistic expectations about success rates.

For help preparing the property, see our checklist: Preparing Your Property for Appraisal: Checklist to Maximize Value.

Common mistakes and misconceptions

  • Mistake: Treating the appraisal as a formality. It directly affects loan approval.
  • Mistake: Assuming a second appraisal always overturns a low value. Reviews must show valid errors or omitted comps.
  • Misconception: All lenders use the same timeframe for “recent”—they do not.

Frequently asked questions

  • Can I challenge a low appraisal? Yes. Submit credible, new comparable sales or factual errors to the lender; they can order a review or a second appraisal, but reversals are not guaranteed.
  • How long does an appraisal add to closing? Typically 1–2 weeks, but scheduling and reviews can extend timelines.

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Professional disclaimer

This article is educational and does not constitute personalized financial, legal, or tax advice. For decisions affecting your mortgage, consult your lender, a licensed appraiser, or a qualified financial professional.

Authoritative sources

(Edited for clarity and accuracy. In my 15 years in finance I’ve managed numerous closings where appraisal results changed deal structure; working proactively with lenders and real estate agents improves outcomes.)