If an appraisal comes in lower than the offered price, what action can the buyer take regarding an FHA loan?

When an appraisal on a property comes in lower than the offered price in the context of an FHA loan, the buyer must consider their options carefully. One of the main purposes of the appraisal is to protect the lender from loaning more money than the property is worth. Therefore, if the appraisal provides a value lower than the offered price, the buyer typically has two options: they can pay the difference in cash or choose to terminate the contract.

Paying the difference in cash means that the buyer would essentially make up the gap between the appraised value and the purchase price, allowing the transaction to proceed as originally intended. On the other hand, if the buyer feels uncomfortable proceeding at the higher price, they also have the right to terminate the contract without any penalty, provided the contract includes appraisal contingencies.

This choice is particularly relevant for FHA loans, as these loans have specific requirements and protections in place for both buyers and lenders. Other options, such as convincing the seller to lower the price or proceeding with the original loan amount regardless of the appraisal, are not typically viable or advisable actions due to the guidelines surrounding FHA loans and the risk they pose to both parties.