How to use the appraisal gap cash needed calculator
- Enter the contract price, which is the price you and the seller agreed on.
- Enter the appraised value from the lender's appraisal report.
- Enter the loan-to-value percent from your loan terms, and the closing costs and prepaid items you expect to pay in cash.
- Read the extra cash you need, the loan the lender will offer, and the cash to close if the seller agreed to lower the price to the appraisal.
Formula
Loan = lower of (price, appraised value) x loan-to-value
Extra cash = loan at the contract price - loan after the appraisal
Cash to close = price - loan + closing costs
The lender lends against the lower of the price and the appraisal, but you still owe the seller the full price. Every dollar of loan that disappears becomes a dollar of cash you bring.
A $350,000 offer that appraises at $330,000
With 80% loan-to-value and $8,000 of closing costs, the loan at the contract price would have been $280,000 and the cash to close $78,000. The appraisal brings the loan down to 80% of $330,000, which is $264,000, so the cash to close rises to $350,000 - $264,000 + $8,000 = $94,000. The extra cash is $16,000.
If the seller agreed to drop the price to $330,000, the loan would still be $264,000 and the cash to close would be $330,000 - $264,000 + $8,000 = $74,000. That is $20,000 less than the $94,000, because the whole price cut comes off the cash you bring while the loan stays where it is.
Why the gap lands on the buyer
A lender sets the loan from the appraised value because the property is the security for the loan. If you agree to pay more than the appraisal, the lender does not lend on the difference. The seller still expects the full price at closing, so the gap has to come from cash, from a lower price or from a different deal.
The gap is $20,000 in the example, but the extra cash is $16,000. You were always going to pay 20% of every dollar of the price yourself, so only the 80% the lender would have lent on the gap turns into new cash. The calculator shows both numbers so you can see the difference.
Options when the appraisal comes in low
Buyers usually weigh a few paths: ask the seller to lower the price, split the gap with the seller, bring the extra cash, ask for a second look at the appraisal with new evidence, or walk away if the contract allows it. The contract decides which of these are open to you, so read the appraisal clause before you decide. Use the Down Payment Calculator to see how a larger down payment changes your plan, and the Closing Cost Calculator for the closing figure you enter here.
To see what the smaller loan costs each month, put the loan amount from this page into the Mortgage Calculator. The Loan-to-Value Calculator shows the ratio for any price and loan.
Assumptions and limits
- The lender applies the loan-to-value percent to the lower of the price and the appraised value. Some loan programs add fees or use a different base.
- Closing costs and prepaid items stay the same whatever the loan size. In practice a few of them move with the loan.
- The percent and the closing amount are examples. Use the ones in your loan estimate.
- This is arithmetic only and not advice on whether to renegotiate, pay the gap or walk away.
Frequently asked questions
What is an appraisal gap?
It is the amount by which the contract price is above the appraised value. A $350,000 price and a $330,000 appraisal leave a $20,000 gap.
Why is the extra cash smaller than the gap?
You were always going to pay part of the price in cash. With 80% loan-to-value the lender would have covered 80% of the gap, so the loan that disappears is 80% of the gap and that share is the extra cash.
What if the appraisal is higher than the price?
The lender uses the lower number, which is the price. The extra cash is zero and the loan is unchanged.
Does a larger down payment remove the gap?
No. A different loan-to-value changes how much is borrowed, but the loan still shrinks when the appraisal is low. Change the percent on this page to see how the cash to close moves.