Overview
The appraisal plays a central role in every mortgage approval.
Lenders use it to confirm the property’s market value, verify its condition and ensure the loan amount aligns with their risk guidelines. Even with strong credit and income, a mortgage can be delayed or declined if the appraisal does not support the required value.
This guide explains exactly how mortgage approvals depend on the appraisal and what lenders look for when assessing the report.
Many clients focus on income and credit when applying for a mortgage, but the property value is just as important.
A lower than expected appraisal can:
• Reduce borrowing power
• Increase the required down payment
• Trigger additional lender conditions
• Delay funding
• Cause the lender to decline the mortgage
Understanding how appraisals influence approvals helps clients set realistic expectations and avoid surprises.
How Lenders Use the Appraisal in Approvals
- Loan to Value Ratio
The loan to value ratio is the relationship between the mortgage amount and the appraised value.
Example:
If a client needs a mortgage of 800 thousand but the appraisal comes in at 900 thousand, the loan to value ratio is 89 percent.
If the appraisal comes in at 850 thousand, the loan to value ratio jumps to 94 percent.
Many lenders have strict loan to value caps.
- Required Down Payment
If the value comes in lower than the purchase price, the client may need to increase their down payment to cover the difference.
- Mortgage Insurance Eligibility
For insured mortgages, the property must meet CMHC guidelines.
A weak appraisal can cause the insurer to reject the application even if the lender approves it.
- Rate and Product Options
Some lenders offer better rates for lower risk loan to value ratios.
A higher appraised value can expand product options.
Other Appraisal Factors That Influence Approvals
- Illegal or Unpermitted Work
Lenders avoid properties with:
• Illegal basement apartments
• Unpermitted additions
• Unresolved zoning issues
These issues can affect loan approval.
- Tenant Occupancy
Tenants can limit access and create uncertainty about condition or rental income.
Lenders may require additional documentation.
- Property Type Restrictions
Some lenders have tighter guidelines for:
• Rural properties
• Former grow ops
• Log homes
• Properties on private roads
• Multi unit rentals
The appraisal must address these risks clearly.
- Market Conditions
In fast changing markets, lenders may apply extra caution, especially during softening periods.
What happens if the appraisal comes in low?
You may need to increase your down payment, adjust your loan amount or explore other lender options.
Can I challenge a low appraisal?
Yes. You can request a reconsideration if you have strong evidence, such as more relevant comparables.
Do lenders tell appraisers the value they need?
No. Appraisers must remain independent and cannot be influenced by target numbers.
If you want clarity about how your property value will impact your mortgage approval or you want support before your appraisal takes place, our team is here to help.
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