Low Appraisal, lender requiring PMI for loan, can I back out?

[Kevin Tapang]

Hello all!

Some background information. First time home buyer with contracted builder. I'm working with the sales representative of the builder, and their approved lender. I'm financing the purchase. New to real estate before I bought, so I have no real estate agent or attorney on my side. Didn't know any better.

I've agreed to purchase the home with an agreement of approximately $500k. The appraisal was done, and it came back at $480k. Now, the lender and builder are attempting to challenge the appraisal (apparently appraiser used wrong comps). Also, because of the low appraisal, the lender will only loan me based off of the appraisal value (480k). The lender recommended that a slightly higher interest rate and PMI is an option if I can't come up with the 20k difference. However, I don't want to do this. I understand my options are to negotiate the price lower, come up with difference on my end, or simply walk away.

Walking away would be an option, but after I reviewed my contract, there are no contingencies listed. However, I am in not breach of contract as well.

Is walking away and getting my earnest money back a possibility? Any advice would greatly help during this stressful time. Thanks so much.

These are the terms regarding financing in my purchase agreement.