Appraisal vs. Pre-Approval

Why Your Mortgage Pre-Approval Doesn’t Guarantee Financing

If you’re in the process of buying a home in Toronto, especially if it’s your first, there’s something really important you need to know. Your mortgage pre-approval is just the beginning. It does not guarantee that the bank will lend you the full amount you think you’re approved for. Let me explain why.

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What a Mortgage Pre-Approval Actually Means

Getting pre-approved is a great first step. It means a lender has reviewed your finances and decided that you can afford a certain price range based on your income, credit score, and debt levels. That number gives you a starting point for your search and shows sellers that you’re serious.

But here’s the catch.

The pre-approval is for you, not for the property you end up buying.

Enter the Appraisal

Once your offer is accepted, the lender still needs to assess the home itself. This is where the appraisal comes in. The lender wants to make sure the property is worth what you’re paying for it, because they’re using that property as security for the loan.

An appraiser is typically hired to evaluate the fair market value of the home. This is based on recent comparable sales in the area, the condition of the property, and its location.

If the appraisal comes in at or above the price you offered, great. You move ahead with the financing and get closer to closing.

But if the appraisal comes in lower than your purchase price, that’s where you can run into trouble.

Buying a home can be a complicated process. Going into things with as much information as possible is key! Keep watching these videos next to learn more about buying your next home:

When the Appraisal Comes in Low

Let’s say you made an offer of $850,000 on a condo. You’re pre-approved for that amount, so you assume everything is good to go.

But the appraiser evaluates the property and says it’s worth $800,000.

The lender will only lend based on the appraised value, not the price you agreed to pay. That means your mortgage is now based on $800,000, not $850,000. And that $50,000 difference? You’ll have to come up with it out of pocket. That can be a serious financial strain, especially if you’ve already pushed your budget.

How to Protect Yourself

This is why I always advise buyers to keep a financing condition in their offer unless they fully understand and are comfortable with the risk. Skipping that condition without knowing how the bank will value the home can be a costly mistake.

When I work with clients, I do a comparative market analysis on any property they’re considering. Often, we do this even before we go see it. That analysis helps us understand what the property is realistically worth and whether it aligns with market trends and comparable sales. It’s also a helpful tool when preparing a competitive but strategic offer.

Most importantly, it helps avoid the appraisal gap.

Remember These Three Things

✅ Your pre-approval is for you, not the property
✅ The home still needs to be approved through an appraisal
✅ The bank lends based on what the home is worth, not what you agreed to pay

Buying your first home in Toronto can feel overwhelming, but you don’t have to go through it alone. If you have questions about mortgage pre-approvals, appraisals, or how to protect yourself when making an offer, I’m here to help.