Why Mortgage Preapproval Doesn’t Guarantee Approval
In today’s competitive real estate market, getting preapproved for a mortgage is often considered the first step toward homeownership. Sellers frequently expect buyers to be preapproved before entertaining offers.
But despite its importance, there’s a common misconception among first-time homebuyers and even seasoned shoppers: that a mortgage preapproval is a guarantee of final approval. It’s not.
This misunderstanding can lead to heartbreak, failed deals, and financial confusion. Let’s explore why mortgage preapproval doesn't guarantee approval, what the differences are, and how you can avoid common pitfalls that cause mortgage denials.
What Is Mortgage Preapproval?
A mortgage preapproval is a lender’s conditional offer to loan you a certain amount of money to buy a home. It’s based on a preliminary assessment of your finances—typically including your income, debts, assets, and credit history.
Unlike a prequalification, which is a rough estimate based on self-reported numbers, a preapproval usually involves:
A hard credit check
Verification of income and employment
A debt-to-income (DTI) calculation
Review of your assets (such as bank accounts and RRSPs)
If you pass the lender’s initial screening, they’ll issue a preapproval letter. This letter states how much the lender is willing to loan you, the interest rate (often locked for 60–130 days), and any conditions.
Why Preapproval Is Not a Final Approval
1. It’s Based on a Snapshot in Time
Mortgage preapproval is based on the information available at the time of application. It’s a best guess, assuming nothing changes. But life happens—people lose jobs, take on new debt, or change financial habits. If anything in your financial picture shifts between preapproval and final approval, the lender may reassess your risk.
For example, if you finance a new car or max out a credit card during the homebuying process, your debt-to-income ratio could change enough to disqualify you.
2. The Property Must Also Qualify
Even if you’re a model borrower, the property you're buying must meet certain criteria. The lender needs to confirm that the home is:
Worth the amount you’re paying (via an appraisal)
In good structural condition
Not subject to legal or zoning issues
Located in an acceptable area (some rural or condo developments are flagged)
If the property doesn’t appraise for the purchase price, or if there are legal concerns with the title, the lender may refuse to fund the mortgage, regardless of your personal financial stability.
3. Final Underwriting Is More Thorough
While preapproval is relatively comprehensive, final underwriting is much more detailed. It often involves:
Updated income and employment verification
A second or updated credit report
Review of your chosen property’s appraisal and title
Verification of source of down payment and closing costs
Even small discrepancies between what you reported at preapproval and what is verified during underwriting can lead to denial.
4. Conditional Preapprovals Come with Fine Print
Lenders often include conditions in your preapproval letter—such as “subject to appraisal,” “subject to verification,” or “subject to employment continuity.” These conditions are not mere formalities. If you don’t meet all of them, the preapproval essentially becomes void.
Additionally, some lenders issue preapprovals with minimal due diligence, especially if they're done online or through mortgage brokers with quick turnaround times. In these cases, the preapproval may not carry much weight at all.
5. Changes in Lender Policies or Interest Rates
Lenders reserve the right to change their lending criteria. During times of economic uncertainty, credit tightening, or changes in interest rate environments, banks and credit unions may revise what types of loans they’re willing to approve—even after issuing preapprovals.
For example, during early 2020 when COVID-19 created financial volatility, many Canadian lenders temporarily adjusted their loan requirements, leaving preapproved buyers scrambling.
Common Reasons for Mortgage Denial After Preapproval
Job loss or change of employment
New debt or increased credit utilization
Missed payments or drop in credit score
Inability to document down payment source (e.g., large cash deposits)
Property appraisal comes in too low
Issues with property title, zoning, or condition
Switching lenders and restarting underwriting
How to Protect Your Final Approval
Knowing that preapproval is conditional, here’s how to avoid last-minute mortgage denials:
✅ Maintain Job and Income Stability
Avoid quitting, changing jobs, or becoming self-employed until after your mortgage is finalized.
✅ Don’t Take on New Debt
Don’t apply for car loans, new credit cards, or furniture financing—even if you’re just “prequalified.” All new credit inquiries or balances can affect your credit score and DTI.
✅ Be Honest and Consistent
Don’t fudge income numbers, hide debts, or fail to disclose key financial details. Discrepancies between what you told the lender and what they find later can tank your approval.
✅ Keep Your Finances Clean
Avoid large, unexplained deposits or transfers. Lenders are required to verify the source of your down payment due to anti-money laundering laws.
✅ Choose a Qualified Property
Work with an experienced real estate agent and avoid problematic properties—like ones with zoning violations, illegal suites, or poor resale potential.
Is It Still Worth Getting Preapproved?
Absolutely. Despite not being a guarantee, a mortgage preapproval:
Shows sellers you’re serious
Helps you understand your budget
Locks in an interest rate (in many cases)
Makes the final loan process faster
But think of it as a conditional green light—not a full-speed-ahead.
Get Professional Advice
Hello, I’m David Pipe. At WealthTrack, we can help you reach your financial goals — book a free 15-minute call with us today to find out how to get started.
Final Thoughts
Mortgage preapproval is a powerful tool in your homebuying journey, but it’s not a promise etched in stone. Many factors can derail the process between preapproval and closing, including changes to your personal finances, issues with the property, or shifting lender guidelines.
The best way to protect yourself is to stay financially stable, communicate regularly with your lender, and understand the fine print of your preapproval. And remember: the finish line isn’t preapproval—it’s closing day.
