You need to talk to your lender and/or Realtor. But here is my explanation:
If you're buying a house for $200K, and you're going with an FHA loan with 3.5% down, that's $7000 down payment. Closing costs are on top of that. Your lender should have given you a good faith estimate of what your closing costs will be. Usually 1-3% of the purchase price. A lot depends on their origination fee, any PMI fees or pre-payments, interest rate buy-down, etc. So at a purchase price of $200K your loan amount is $193K. (96.5% of $200K)
BUT....let's say the home only appraises for $195K. Your lender only will loan you 96.5% of that price. (So $195 x 96.5 = a loan amount of $186,245). So...instead of a downpayment of just $7K you'll have to come up with the difference between $200K and $186,245, so now you're looking at about $13,755.
Again, you really need to be talking to the pros who are working with you.