The Appraisal & Your
Mortgage Approval
The appraisal plays a central role in every mortgage approval. Lenders use it to confirm market value, verify condition, and manage risk.
Why This Matters
Many clients focus on income and credit when applying for a mortgage, but the property value is just as important to the lender's final decision.
The Impact of a Low Appraisal
Understanding how appraisals influence approvals helps you set realistic expectations and avoid surprises during the high-stakes mortgage process.
Lender Review Framework
How Lenders Use the Appraisal in Approvals
- Impacts maximum borrowing power
- Determines mortgage insurance needs
An appraisal is more than just a "number"—it is a risk assessment document. By ensuring the report hits these four pillars, we help facilitate a smoother approval process with fewer "subject-to" conditions from your lender.
How the Appraised Value Impacts Borrowing Power
The appraisal is the final checkpoint for your mortgage. A variation in value can shift your entire financial structure.
1. Loan to Value (LTV) Ratio
The LTV is the relationship between the mortgage and appraised value. If you need $800k on a $900k appraisal, your LTV is 89%. If that appraisal drops to $850k, your LTV jumps to 94%, often exceeding strict lender caps.
2. Required Down Payment
When the appraisal comes in lower than the purchase price, lenders base the loan on the appraised value. You may need to increase your down payment out-of-pocket to bridge the gap.
3. Mortgage Insurance Eligibility
Insured mortgages must meet CMHC/Sagen guidelines. A weak appraisal can cause an insurer to reject the application even if the primary lender is willing to proceed.
4. Rate and Product Options
Lower LTV ratios represent lower risk to the bank. A higher appraised value can unlock better interest rates and a wider variety of specialized mortgage products.
Other Appraisal Factors That Influence Approvals
⚠️ Illegal or Unpermitted Work
Lenders are highly sensitive to illegal basement apartments, unpermitted additions, or unresolved zoning. These issues create liability and can immediately halt a loan approval.
👥 Tenant Occupancy
Tenants can limit property access and create uncertainty regarding the interior condition or actual rental income. Lenders often require formal lease agreements and schedule "A" documentation.
🏘️ Property Type Restrictions
Tighter guidelines exist for rural properties, log homes, or properties on private roads. The appraisal must clearly address these unique risks to satisfy institutional standards.
📈 Market Conditions
In fast-changing or softening markets, lenders apply extra caution. The appraisal must provide "Time Adjustments" and market data to prove the value is stable for the duration of the loan.
🏗️ The Goal: A "Clean" Approval
A successful appraisal doesn't just provide a number; it clears the path for the lender by addressing these secondary risks upfront, ensuring there are no surprises at the funding table.
Appraisal & Approval FAQ
Answers to common questions about valuation outcomes and lender requirements.
If the appraised value is lower than the purchase price or target amount, a "valuation gap" is created. To proceed, you may need to increase your down payment to maintain the required Loan-to-Value (LTV) ratio, adjust your total loan amount, or explore alternative lenders with different risk tolerances.
Yes. You can request a Reconsideration of Value (ROV) through your lender if you have strong evidence that the report is flawed. This typically requires providing more relevant, recent comparables that were missed or proving that significant property features were overlooked during the inspection.
Strictly no. Professional appraisers must remain independent third parties. It is a violation of professional standards and banking regulations for a lender to influence or pressure an appraiser to hit a specific "target number." The appraiser's duty is to the market data, not the loan goal.
Ready to Secure Your Approval?
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.
