Lender Appraisal Below Purchase Price in Quebec: Why the Gap Comes Out of Your Down Payment

Your offer is accepted, your pre-approval is in hand, then the lender calls: its appraiser values the property below the agreed price. Our article on the financing clause in a Quebec purchase offer explains what that protection is for. This one focuses on the math: why the gap between price and appraisal lands on your down payment, how much it adds up to, and what you can do about a low appraisal.

Why the lender appraises the home you are buying

To a lender, the house is first and foremost security for the loan. If it ever had to take the property back and sell it, the home's actual value would repay the debt, not the price you agreed to in a bidding war or because you fell in love with the kitchen.

Guideline B-20 from the Office of the Superintendent of Financial Institutions (OSFI), which governs federally regulated lenders, asks them to take a risk-based approach to valuing a property. It mentions on-site inspections, third-party appraisals and automated tools, and says outside appraisers should be independent of the loan decision process. The appraiser's conclusion does not depend on what you offered.

The rule: the loan is based on the lower of the two values

Lenders lend up to a maximum percentage of the property's value, the loan-to-value ratio (LTV). In practice, the value they use is the lower of the purchase price and the appraised value. As long as the appraisal matches or exceeds the price, nothing changes. Once it comes in below, the maximum loan drops, while the price you owe the seller stays exactly the same.

The difference does not vanish. It has to come from you, which is why a low appraisal effectively increases your down payment.

Two federal thresholds frame the math. According to the Financial Consumer Agency of Canada, a down payment under 20% of the price typically requires mortgage loan insurance, and the minimum down payment is 5% on homes up to $500,000. Since December 15, 2024, the price cap for insured mortgages is $1.5 million, according to the Department of Finance.

A practical note on timing. A pre-approval tells you how much a lender is prepared to lend based on your income, debts and credit; it does not tell you what the lender will think the specific property is worth, because it is usually issued before a property is chosen. The appraisal happens after your offer is accepted, inside the window of your financing condition. That is why an approved buyer can still face a funding gap on a specific house.

Worked example 1: an insured purchase

The figures below are a constructed example, not a real case. They show the mechanics and leave out the insurance premium and closing costs.

• Accepted price: $500,000. Planned down payment: 5%, or $25,000. Planned mortgage: $475,000, a 95% LTV.
• Lender appraisal: $480,000. The 95% ratio now applies to $480,000, so the maximum mortgage falls to $456,000.
• The seller still expects $500,000. The down payment you need becomes $500,000 minus $456,000, or $44,000.
• Extra down payment: $19,000, for an appraisal gap of $20,000.

Why $19,000 rather than $20,000? Because the 5% you would have put down on the missing $20,000 was already part of your original down payment. Keeping the $475,000 mortgage on a $480,000 value would push the LTV to about 99%, which no insured mortgage allows.

Worked example 2: a purchase with 20% down

• Accepted price: $600,000. Planned down payment: 20%, or $120,000. Planned mortgage: $480,000, an 80% LTV.
• Lender appraisal: $570,000. At 80% of $570,000, the maximum uninsured mortgage is $456,000.
• Down payment needed: $600,000 minus $456,000, or $144,000.
• Extra down payment: $24,000, for an appraisal gap of $30,000.

This buyer has another path. Keeping the $480,000 mortgage would push the LTV on the appraised value to about 84%, and Guideline B-20 requires federally regulated loans above 80% LTV to be insured. Instead of finding $24,000, the buyer could switch to an insured mortgage, with a premium and the criteria that come with it. A mortgage advisor can price out both routes.

Your options when the appraisal comes in low

• Renegotiate the price. The appraisal is leverage, not an obligation on the seller, who may lower the price, split the gap or refuse. Your broker can make the request with the comparable sales that support it.
• Cover the gap. If you have the cash, paying the difference keeps the deal intact. Make sure that money is not already earmarked for the welcome tax, notary fees and moving costs.
• Challenge the appraisal. You can ask the lender to reconsider by submitting recent comparable sales that may have been missed, or take the file to another lender. A revision is never guaranteed, and your condition deadline keeps running.
• Rely on the financing condition. Depending on its wording, a condition that names a loan amount or ratio may let you withdraw if the lender will not grant that loan. It all depends on your clause's terms and meeting its deadline.

That last point is the delicate one. An offer with no financing condition leaves no such exit: the gap is yours to cover even if no lender will finance the full price.

How to reduce the risk before you even make an offer

The lender's appraisal comes after acceptance, but you can prepare for it. Comparing the asking price with recent sales of similar homes in the area shows how much room there is between your offer and a defensible value. In multiple-offer situations, that is often where the gap is created: bidding well beyond the comparables means accepting in advance that the difference may come out of your pocket.

Keeping a cash cushion beyond the minimum down payment, and a financing condition with a deadline long enough for the appraisal, round out that caution. This article is general information: your lender or mortgage advisor is the person to consult on your file, and your broker on how the condition is written.