What if the appraisal comes in below your offer?
The price you agreed to pay and the value your lender accepts can be different. That can leave you needing more purchase cash, even if your income and down payment have not changed.
Consider an $800,000 purchase with a $750,000 appraisal. The difference is $50,000. But in a conventional example that advances 80% of the lower value, the reduction in financing is $40,000. Knowing which number you are looking at matters when you are deciding whether the purchase can be funded.
The example below keeps the purchase price, mortgage and paid deposit separate. All amounts are fictional. It describes one financing model, not the terms of an available mortgage.
Three amounts to keep separate
The agreed purchase price is what the agreement says you will pay. The appraised value is an estimate of the property’s value. The mortgage advance is the financing the lender is prepared to provide under its conditions. A change to the appraisal does not, by itself, rewrite the purchase agreement.
TD’s mortgage glossary describes an appraisal as a valuation used usually for lending purposes, which may differ from the purchase price. It defines a conventional mortgage as no more than 80% of purchase price or value, whichever is lower. That lower-value convention is the basis of the example below.
Interactive funding example · CAD
Where does the extra cash come from?
This example assumes a conventional mortgage advanced at your chosen percentage of the lower of purchase price and lender valuation. It is not a lender quote, preapproval or qualification test.
Use plain numbers without commas. The model allows an advance above 0% and no more than 80%. The deposit is credited once against the purchase price. It is not added on top of the down payment.
Additional purchase cash versus the price-based assumption
$40,000.00
The valuation difference is $50,000.00. The financing reduction is $40,000.00 at the entered advance percentage.
Purchase-price cash needed in total: $200,000.00
Remaining after the paid deposit: $160,000.00
Closing costs are unknown and excluded. This is not an all-in cash-to-close figure.
- Illustrative mortgage$640,000.00
- Deposit already paid$40,000.00
- Remaining purchase cash$120,000.00
- Illustrative mortgage$600,000.00
- Deposit already paid$40,000.00
- Remaining purchase cash$160,000.00
Closing costs sit outside both funding bars. Income and debt qualification, lender limits, property eligibility, insured mortgages, financed premiums and contract remedies are not modelled. A higher appraisal does not increase the advance above the price-based amount here. Changing these fields does not change an agreement or confirm available financing.
Why the $50,000 valuation gap becomes $40,000 more cash
At 80% of an $800,000 price, the assumed mortgage is $640,000. The buyer would supply $160,000 toward the purchase price. At 80% of the lower $750,000 valuation, the illustrative mortgage falls to $600,000. The buyer’s purchase-price contribution rises to $200,000.
The financing change is therefore $40,000: 80% of the $50,000 difference. The original plan already required the buyer to fund 20% of the price. Treating the entire appraisal shortfall as additional cash would overstate the change under this particular model.
Your actual result may differ. A lender can advance less than the percentage shown because of borrower qualification, the property or its own policies. If your original mortgage assumption was already lower, compare the revised funding with that actual assumption. Do not substitute this calculation for the written mortgage terms.
Your deposit is part of the purchase cash
For this illustration, assume a $40,000 deposit has already been paid and will be credited toward the purchase price at closing. Of the $200,000 purchase-price cash required in the lower-value example, $160,000 remains to be supplied. Adding the deposit again would count the same money twice.
That $160,000 is not the complete amount to arrange for closing. Land transfer taxes, legal fees, adjustments and other applicable costs need separate provision. Ask your lawyer for the transaction-specific calculation and the timing of funds. If the deposit exceeds the cash contribution shown by a financing model, have the lender and lawyer reconcile the advance rather than assume the calculator is promising a refund.
A preapproval is not approval of this property
The Financial Consumer Agency of Canada says preapproval does not guarantee a mortgage, and that the approved amount depends on property value and down payment. The lender also checks that the property meets its standards. A rate hold or an earlier maximum borrowing estimate does not settle those property-specific questions.
Before treating financing as resolved, ask your lender or mortgage broker:
- What property value are you using, and what mortgage advance is approved in writing?
- Which borrower, property, insurer or documentation conditions remain?
- Does the appraisal require clarification or correction, and what is the process and timing for that request?
- How much additional cash would be required, from what acceptable sources, and by when?
An updated appraisal or another lender may not produce a different result. An additional loan can also change your qualification. Have the financing professional assess any proposed change rather than treating borrowed cash as a simple fix.
Bring the agreement into the conversation early
If a lower valuation threatens your funding, speak with your real estate lawyer and financing professional promptly. Have the signed agreement, condition deadlines, deposit record and lender’s written response available. The options depend on the agreement and the circumstances.
This article cannot tell you that a financing condition lets you cancel, that a seller must reduce the price, or that a deposit will be returned. Get legal advice before waiving a condition, attempting to terminate or assuming a remedy. For the wider sequence, return to the Ontario home-buying process guide. For ongoing condo payments, use the monthly-cost comparison; purchase funding and monthly carrying costs are different questions.