How appraisals factor into mortgage approval

Lenders use appraisals to confirm that the home they’ll accept as collateral is worth the amount being borrowed. The appraisal establishes the property’s market value and helps lenders calculate the loan-to-value ratio (LTV), a primary risk metric in underwriting. A lower-than-expected appraisal raises the LTV and can trigger one or more outcomes: lender denial, a requirement that the borrower increase their down payment, renegotiation of the purchase price, or in some cases, a different loan program.

This is why appraisals matter: they protect lenders from lending more than the property is worth and protect buyers from overpaying. For more on how appraisals affect loan size and approval, see FinHelp’s article on How Property Appraisals Influence Mortgage Amounts and Approval.

Source guidance from HUD, the Consumer Financial Protection Bureau, and the Federal Housing Finance Agency outlines the appraisal’s role in mortgage lending and borrower protections (U.S. Dept. of Housing and Urban Development; Consumer Financial Protection Bureau; Federal Housing Finance Agency).

What appraisers evaluate (and how value is calculated)

Appraisers use three standard approaches to estimate value:

  • Sales comparison approach: comparing the subject property to recent sales of similar homes (comps) in the area. This is the most common method for single-family homes.
  • Cost approach: estimating how much it would cost to replace the property (useful for new construction or unique properties).
  • Income approach: used primarily for rental or investment properties, based on expected income and capitalization rates.

Appraisers adjust comparable sales for differences (lot size, bedrooms, condition, recent renovations). They also consider location, zoning, neighborhood trends, and market conditions on the appraisal’s effective date. The result is a concluded market value that the lender uses in underwriting.

Types of appraisals and alternatives you might see in 2025

  • Full interior appraisal: licensed appraiser inspects inside and outside the home and prepares a detailed report. Most common for purchase loans.
  • Exterior-only appraisal (drive-by): appraiser inspects exterior and uses public records and comps; used in some lower-risk or refinance situations.
  • Automated Valuation Model (AVM): computer-generated estimate using algorithms and public data. AVMs are faster and cheaper but less reliable on complex properties.
  • Bifurcated appraisal / appraisal with desktop review: physical inspection and a separate reviewer who completes the valuation.

Some loans may qualify for an appraisal waiver through automated underwriting (e.g., GSE programs) — meaning the lender can proceed without a full appraisal if the automated system determines risk is low. These waivers are more common on purchase loans with strong borrower profiles and ample market data (Federal Housing Finance Agency guidance).

Typical timeline and cost

  • Ordering to delivery: a few days to a few weeks, depending on market activity and appraiser availability.
  • Cost: nationally, appraisal fees often range from $300 to $700 (higher for complex or large properties). Fees vary by market and loan type.

Quicker turn times and AVMs reduced some wait times after 2020, but full interior appraisals remain standard for many purchase and government-backed loans (HUD; CFPB).

What happens when an appraisal comes in low

If the appraisal value is below the agreed purchase price, common borrower options include:

  1. Renegotiate the price with the seller to align with the appraised value.
  2. Increase the down payment to keep the original loan amount while maintaining the lender’s required LTV.
  3. Ask the lender to review the appraisal or order a second appraisal (reconsideration of value). Lenders may agree to a review if the borrower supplies evidence like overlooked comps or improvements.
  4. Walk away from the deal if the purchase contract includes an appraisal contingency.
  5. Switch to a different loan program (for example, a portfolio loan) willing to accept higher LTV or nonstandard valuations.

In my practice I’ve seen buyers successfully request a reconsideration when the appraiser missed recent, very similar sales nearby. But lenders aren’t required to change their decision — the appraisal is part of the underwriting record.

How borrowers can prepare to help a favorable appraisal

  • Provide a comps packet: give the appraiser (through the lender or real estate agent) a list of recent comparable sales with photos and links to MLS entries.
  • Make small, cost-effective repairs: fix visible issues such as broken windows, peeling paint, damaged flooring, and leaky faucets.
  • Document improvements: keep receipts and permits for renovations, especially major upgrades (roof, HVAC, additions) and show which work was permitted.
  • Stage and clean: good first impressions during a walk-through can influence perceived condition.
  • Ensure easy access: clear pathways and provide up-to-date keys, codes, or appointment windows.

These steps can matter. I once advised a seller to present permits and receipts for a kitchen remodel; the appraiser adjusted upward for permitted structural work, improving the final valuation.

Underwriter perspective: how appraisals interact with other loan factors

Underwriters combine appraisal results with borrower credit, income verification, and asset documentation. An appraisal that supports the sales price reduces underwriting friction. Conversely, a low appraisal can trigger requests for compensating factors—larger reserves, stronger credit scores, or reduced loan amount.

For more on appraisal use inside underwriting, see FinHelp’s resource on Appraisals and Their Role in Mortgage Underwriting.

Special rules for government-backed loans

  • FHA loans: appraisals include minimum property standards and a “minimum property requirements” inspection. A low appraisal or health/safety issue can require repairs before closing (HUD appraisal guidance).
  • VA loans: the VA appraisal produces a minimum property value and may require certain repairs or evidence for eligibility (VA appraisal processes).
  • USDA loans: appraisals must show property meets program standards and market value for rural areas.

Government programs add steps beyond valuation: appraisers check habitability and program-specific requirements.

Common misconceptions

  • “The sale price equals value.” Not always. The appraisal is an independent market-based estimate.
  • “I can always force the lender to accept the contract price.” Lenders rely on the appraisal to protect their collateral; they won’t typically accept a loan over the appraised value without additional borrower funds or compensating factors.
  • “Appraisals are arbitrary.” Appraisers follow standardized approaches and adjust comps to reach a defensible market value, and their reports are subject to review and professional standards.

Quick decision checklist for buyers when faced with a low appraisal

  • Review the appraisal report carefully for factual errors (square footage, number of rooms, condition).
  • Gather evidence (recent comps, permits, contractor receipts) and ask your lender about a reconsideration of value.
  • Discuss renegotiation strategies with your agent: seller concessions, price reductions, or split-the-difference options.
  • Evaluate whether increasing your down payment or finding alternate financing is feasible.
  • Confirm contract remedies: does your purchase contract allow cancellation on appraisal contingency?

Frequently asked questions

Q: Can I challenge an appraisal?
A: Yes. You can request a reconsideration or provide additional comparable sales and documentation. Lenders may order a review or second appraisal, but they are not obligated to change the original appraisal.

Q: Who pays for the appraisal?
A: Typically the borrower pays the appraisal fee at the time the appraisal is ordered, though payment arrangements can vary by lender and loan type.

Q: How often are appraisals waived?
A: Appraisal waivers are issued by automated underwriting systems when data quality and borrower profile justify a waiver. These were more common after program updates by Fannie Mae and Freddie Mac but depend on individual loan criteria (FHFA guidance).

Final thoughts and practical next steps

A realistic understanding of appraisals reduces surprises. Treat the appraisal as a data-driven check of market value and prepare accordingly: document upgrades, present accurate comparables, and budget for contingencies if the appraisal is low. If you’re uncertain, talk to a licensed mortgage professional or appraiser — they can explain program-specific rules and next steps.

Professional disclaimer: This article is educational and not personalized financial advice. For loan decisions, consult a licensed mortgage professional or appraiser about your specific facts and programs.

Authoritative references: U.S. Department of Housing and Urban Development (HUD) “Understanding the Appraisal Process,” Consumer Financial Protection Bureau (CFPB) “The Appraisal Process: What You Need to Know,” and Federal Housing Finance Agency (FHFA) guidance on appraisals in mortgage lending.

Further reading on FinHelp: Preparing for a Mortgage Appraisal During Refinancing (https://finhelp.io/glossary/preparing-for-a-mortgage-appraisal-during-refinancing/) and Refinance Timing After Home Improvements: When Appraisals Matter (https://finhelp.io/glossary/refinance-timing-after-home-improvements-when-appraisals-matter/).