Because the real estate market has become so competitive many buyers are waiving the right to terminate the contract based on the lender’s appraisal. The appraisal is typically done after the buyer’s termination period has ended. If you are waiving your appraisal contingency you will not be able to terminate the contract and receive a refund of your earnest money if the home appraises for less than the sales price. If you are waiving this contingency here is an explanation of how that might affect the amount of money you will need for a down payment.

Please let us know if you have any questions before making an offer on any property.


Contract price $400,000

Appraised value $380,000

If the home appraised value was $400,000 your down payment at 20% to avoid mortgage insurance would be $80,000.

However, when calculating your loan to value (LTV) the mortgage company will use the lower of the contract price or the appraised value. When the appraised value is lower than the contract price you may need to have a larger down payment to avoid paying mortgage insurance or change your mortgage to a different program and pay mortgage insurance.

Here is an example of how the down payment amount would be calculated in this example.

Revised down payment based on this example

Down payment 20% X $380,000 = $76,000

Additional down payment required $400,000 - $380,000 = $20,000

Total down payment to avoid paying mortgage insurance = $96,000

In addition to avoiding mortgage insurance, you should also understand how this calculation would work with a smaller down payment.

Additional example with 5% down payment

Contract price $400,000

Appraised value $380,000

Down payment 5% x $380,000 = $19,000

Additional down payment required $400,000 - $380,000 = $20,000

Total down payment for this loan $19,000 + $20,000 = $39,000

  • Your mortgage company will select the appraiser through an appraisal management company. We are not able to select the appraiser.
  • The appraiser does know the contract price.
  • An appraisal is more art than science. If you had 10 appraisers complete an appraisal for a home you would get 10 different values. Each appraiser may give a different value for condition, upgrades and features of a home. We are not able to guarantee you the appraised value for a home.
  • If the appraised value is less than the contract price your mortgage company may have additional options such as a 2nd lien to avoid needing a larger down payment. You should speak with your mortgage company to review your options.
The information on this page may have changed since we first published it. We give great real estate advice, but this page (and the rest of our site) is for informational use only and is no substitute for actual real estate, legal and financial advice. If you’d like to establish a Broker-client relationship, reach out to us and we’ll tell you how we can make it official. Sending us an email or reading this page alone doesn’t mean we represent you.

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