Process

Appraisal

An appraisal is an independent estimate of a home's market value, done by a licensed appraiser the lender orders. It protects the lender, and you, from paying more than the home is worth. The appraiser compares the home to similar recent sales nearby. If the value comes in low, it can change your loan or your negotiations.

The lender won’t lend more than a home is worth, so they order an appraisal to get an unbiased value. The appraiser visits the property and compares it to similar homes that recently sold nearby, then writes up a supported opinion of value.

Your Loan Estimate notes that the lender may order this appraisal and charge you for it, and that you’ll get a copy. Most of the time the value supports the price and everyone moves on. When it doesn’t, you have choices, which is where an appraisal contingency and the size of any gap come into play.

Related terms

Appraisal Contingency

An appraisal contingency is a clause in your purchase contract that lets you back out, or renegotiate, if the home appraises for less than your offer price, usually without losing your earnest money. It's a safety net for buyers. In hot markets, some buyers waive it to compete, which adds risk if the appraisal comes in low.

Appraisal Gap

An appraisal gap is the difference when a home appraises for less than the agreed price. Say you offer $405,000 and it appraises at $390,000: that $15,000 gap is money the lender won't finance. You'd need to cover it in cash, renegotiate the price, or walk away if you have an appraisal contingency.

LTV (Loan-to-Value Ratio)

LTV, or loan-to-value ratio, compares your loan amount to the home's value, shown as a percentage. If you borrow $360,000 on a $400,000 home, your LTV is 90%. A lower LTV means more equity, which can affect your rate, your mortgage insurance, and the programs you may qualify for.

Last updated: June 13, 2026

This definition is educational and isn't an offer to lend or financial advice. Rates, programs, and guidelines may change without notice. All loans are subject to credit and property approval.

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