Stephen R. Harless, Mortgage Lender - First Federal Community Bank

"Offering an appraisal gap always means you pay more money out of pocket.”

✅ THE TRUTH:
An appraisal gap doesn’t automatically mean more cash to close — it depends on how much you’re putting down.

First, what is an appraisal gap?

When you make an offer on a home, the appraisal gap is the difference between the purchase price and
the appraised value (what the appraiser says the home is worth)

If the appraisal comes in low, the lender bases the loan on the appraised value — not the offer price.

Here’s how the math can work in your favor 👇

💰 Example:

Purchase price: $400,000
Buyer plans: 10% down ($360,000 Loan Amount)
Appraisal comes in at: $379,000

$360,000 / $379,000 = 94.99% Financed

If the buyer can be approved at 95% financing, the loan can simply be structured off the lower appraised value instead of requiring extra cash.

✅ Result:

No increase to cash to close
Buyer can still move forward
Buyer effectively offered a $21,000+ appraisal gap in their offer

📌 The trade‑off?
Financing a higher percentage may slightly increase monthly PMI, but it typically does NOT increase the interest rate.

Why this matters in competitive markets 🏡
Understanding how appraisal gaps really work can:

Make your offer stronger
Reduce unnecessary fear around “low appraisals”
Help you compete without draining savings

Bottom line:

Appraisal gaps aren’t one‑size‑fits‑all. With the right strategy, the math can absolutely work in a buyer’s favor.

MYTH BUSTED!