For FHA or VA loans, are Additional Earnest Money Deposits refundable if a property doesn’t appraise?

If an appraisal comes in below the contract price when the buyer is pursuing an FHA or VA loan and the home buyer has agreed to pay an Earnest Money Deposit? Is that refundable?

Yes.

The FHA/VA Financing Addendum (Form 2A4-T) states that for both VA and FHA loans, a buyer shall not be obligated to complete the transaction or “incur any penalty” by “forfeiture of earnest money deposits or otherwise” unless the subject property meets the applicable appraisal amount.

For an FHA loan, the applicable appraisal amount is determined by an appraiser provided by the lender. For VA loans, the applicable appraisal amount is set by the Department of Veterans Affairs.

In either case, if the appraisal does not meet the appraisal requirements of Form 2A4-T, then a buyer can terminate the transaction and receive a refund of their “earnest money deposits,” even if the termination occurs after the expiration of the Due Diligence Period.

They will however lose their due diligence deposit.

To avoid a termination of the offer, the buyer can try to renegotiate with the seller.