When the appraisal comes in lower than your contract price, the lender sizes your loan on the lower number, and the difference, often called the appraisal gap, has to be covered some other way. In practice that means you bring more cash, the seller lowers the price, you split it, you challenge the value with better evidence, or you use a termination right your Texas contract actually gives you. The appraisal doesn't change the price you agreed to. It changes how much the lender will lend against it.
On a purchase, loan-to-value is figured on the lower of the sales price or the appraised value. Fannie Mae's guide says it plainly: for purchase transactions, the property value is the lower of the sales price or the current appraised value (Selling Guide B2-1.2-01). FHA uses the Adjusted Value, which for a purchase is the lesser of the price (less any inducements to purchase) or the property value from the appraisal (HUD 4000.1 II.A.2.a).
Each program has a maximum loan-to-value for your situation. When the appraisal is lower than the price, that maximum applies to the appraised value, so the loan gets smaller. The price you owe the seller stays the same unless the contract is amended, and whatever is left between the new maximum loan and the price has to come from somewhere other than the lender.
A lower value can ripple through the file. Mortgage insurance, pricing and sometimes program eligibility depend on loan-to-value, so a changed appraisal can mean a revised Loan Estimate and a new look at your cash to close. On a locked loan, a value change that moves loan-to-value can also change the lock's pricing.
A gift can cover your extra cash if it's documented under the program's gift rules. A seller concession can't. Concessions pay closing costs and prepaids within each program's cap. They can't be relabeled as down payment, and money above the cap or above your actual costs is treated as an inducement or sales concession that reduces the value used for loan-to-value, which makes the gap bigger. See seller concessions.
Most financed Texas resales use the Third Party Financing Addendum, TREC No. 40-11. Its Paragraph 2B, Property Approval, says that if your lender determines the property doesn't satisfy its underwriting requirements, including the appraisal, you may terminate on or before the 3rd day before the closing date by giving the seller a notice of termination and a copy of the lender's written statement of the reasons. If you terminate that way, the earnest money is refunded. If you don't, Property Approval is deemed obtained (TREC 40-11).
Paragraph 4 of the same addendum is the FHA/VA required provision. On FHA-insured or VA financing, you aren't obligated to complete the purchase or forfeit earnest money unless you've received the appraised value statement showing a value of at least the amount filled in, or, on VA, if the price exceeds the reasonable value VA established. You can still choose to go ahead regardless of the appraised value, and the 3-day notice rule in Paragraph 2B doesn't apply to Paragraph 4.
The Addendum Concerning Right to Terminate Due to Lender's Appraisal, TREC No. 49-1, is used only with the Third Party Financing Addendum and only when the loan isn't FHA or VA. You check one box (TREC 49-1):
A waiver is a real promise to bring cash. It can make a stronger offer when you have the money and want the house, but decide it deliberately, knowing the most you could bring if the value fell short.
Appraisals often arrive after the option period ends. Once it's over, your unrestricted right to walk away is gone, and any exit tied to value has to come from the financing addendum, the appraisal addendum or another written right in the contract you signed (TREC 20-19, Paragraph 5).
If the report has a factual error or missed a strong comparable sale, you can ask for a reconsideration of value, called an ROV. It works when it's built on evidence:
Both agencies now require a borrower ROV process. FHA's Mortgagee Letter 2024-07, required for case numbers assigned on or after September 2, 2024, allows one borrower-initiated ROV per appraisal and up to five alternative comparable sales (ML 2024-07). Fannie Mae requires lenders to give borrowers a disclosure of the ROV process when they receive the appraisal, and permits one borrower-initiated ROV per appraisal (Selling Guide B4-1.3-12). You submit it through your lender, not directly to the appraiser. Restating the contract price or arguing that buyers were willing to pay more rarely changes anything. The appraiser responds to data.
When the report lands, look at three things together with your agent and me: the appraised value, the revised maximum loan and cash to close, and the deadline in whichever addendum gives you a right to act. Paragraph 2B of the financing addendum runs to the 3rd day before closing. A 49-1 additional right runs a set number of days from the effective date. Missing a deadline can leave you with the gap and no exit. I can usually tell you quickly how the new value changes the loan. The contract decision belongs to you and the seller.
This example is made up. Jordan is buying a $350,000 home in Benbrook with a conventional loan planned at 90 percent loan-to-value, a $315,000 loan. The appraisal comes in at $340,000. At the same 90 percent loan-to-value, the maximum loan is now $306,000, so Jordan needs $9,000 more in cash to keep the price. Jordan's contract has the 49-1 partial waiver box checked with $345,000 filled in. Because the value is under $345,000, the waiver doesn't apply and Jordan's Paragraph 2B right is still there. Jordan asks the seller to come down to $345,000, the seller agrees, and Jordan covers the extra $4,000 with sourced savings (the loan stays at $306,000, since the appraisal is still the lower number). Had Jordan checked the full waiver, the extra $9,000 would have been Jordan's to bring or the earnest money would have been at risk.
Got a short appraisal, or writing an offer above recent sales? Send me the number and your contract, and I'll show you the new maximum loan, the cash it would take to close the gap and whether a different structure fits, before your deadline passes. Schedule a call, or when you're ready, start an application.
Links checked Oct 21, 2026.
About the author: McKade Lively, NMLS 2704474, American Pacific Mortgage Corporation dba True North Home Loans, NMLS 1850.
Equal Housing Opportunity.
Last reviewed: Oct 2026