Your mortgage application requires an appraisal from an independent third party. The lender only wants to be in a position to be able to recover the amount of money loaned to you if they are forced to sell the home as collateral when the loan is in default.
The appraisal company will do a comprehensive report on the condition of the property inside and out, including considerations of comparables of recent sales around the area, and how the local real estate market is performing before it sets a price on how much the property is valued.
If the appraisal company comes back with a value at or more than the contract price, then the bank will lend you the asked amount with no issues.
If the appraisal company comes back with a value lower than the contract price, then the bank will readjust and can only loan you a lower amount. At this point, you have the options of coming up with more money for a larger down payment to meet the contract price, or pay for another appraisal (hoping that the new appraised number will be closer to the contract price), or renegotiate with the seller to lower the contract price due to you being unable to get the proper financing amount, or back out from over paying for the home due to the contract’s financing contingency.