When it comes to purchasing a home, there are various loan options available to help make it more affordable. Two popular loan options for veterans and first-time homebuyers are FHA loans and VA loans.

While these loans can make homeownership more accessible, it`s important to understand what happens when the appraisal of the home is lower than the contract price. Let`s break down what happens with an FHA loan and a VA loan in this scenario.

FHA Loan

With an FHA loan, the Federal Housing Administration (FHA) backs the loan, and the lender is protected if the borrower defaults on the loan. When purchasing a home with an FHA loan, the lender requires an appraisal to determine the home`s value.

If the appraisal comes back lower than the contract price, the buyer has a few options. Firstly, they can negotiate with the seller to lower the price to the appraised value. If the seller is unwilling to lower the price, the buyer can pay the difference between the contract price and the appraised value out of pocket.

Lastly, the buyer can walk away from the deal without penalty, as long as the contract includes a financing contingency. It`s important to note that if the buyer decides to walk away, they may still be responsible for any fees or costs incurred during the loan application process.

VA Loan

VA loans are guaranteed by the Department of Veterans Affairs (VA) and are available to eligible veterans and their spouses. Like with an FHA loan, an appraisal is required to determine the home`s value.

If the appraisal comes back lower than the contract price, the buyer can negotiate with the seller to lower the price to the appraised value. If the seller is unwilling to lower the price, the buyer has a few options.

The first option is to pay the difference between the contract price and appraised value out of pocket. Alternatively, the buyer can request a reconsideration of value from the VA and provide additional evidence to support the home`s value. If the VA approves the reconsideration, the buyer can move forward with the loan at the appraised value.

Lastly, the buyer can terminate the contract without penalty if they included a financing contingency in the contract.

In conclusion, whether you`re using an FHA loan or a VA loan to purchase a home, it`s important to understand what happens when the appraisal comes back lower than the contract price. With the right negotiation skills and contingency plans in place, you can still make homeownership a reality.