Why, Where Buyers Get Denied Mortgages

April 25, 2018

Nearly one in 10 borrowers get denied a mortgage, according to a new analysis by LendingTree, based on a review of 10 million mortgage applications. The company found that the top reasons home shoppers face this rejection is poor credit history and credit score, too high a debt-to-income ratio, too low an appraisal, and an incomplete application.

Credit history and debt-to-income ratios are the chief barriers for denial, accounting for 26 percent each of denied loans. The debt barrier is biggest issue for borrowers living in California, according to the analysis. Three California cities—Los Angeles, San Francisco, and San Jose—had the highest share of borrowers who were denied a mortgage because of their debt-to-income ratio. On the other hand, credit histories are proving the biggest obstacle in Louisville, Ky.; Memphis, Tenn.; and Philadelphia. 

“The current housing market is particularly competitive,” says Tendayi Kapfidze, LendingTree’s chief mortgage economist. “The key for home buyers is being well-educated on the homebuying process, enabling them to be well-prepared when they enter the market. Understanding the key reasons mortgages are denied can help borrowers avoid missteps and compete effectively to secure their dream home.”

In some cities, denial rates were as low as 5 percent, while others saw denial rates at more than double that rate, according to LendingTree’s study. Overall, borrowers in Birmingham, Ala., are the most likely in the nation to be denied a mortgage. The denial rate is 13 percent in the metro area, with poor credit histories being the most common culprit. Twelve percent of borrowers in both New Orleans and Memphis, Tenn., are denied mortgages, which took the number two and three spots, respectively, in LendingTree’s rankings.

The following cities have the highest mortgage denial rates:

  1. Birmingham, Ala.
  2. New Orleans
  3. Memphis, Tenn.
  4. Oklahoma City
  5. Miami
  6. Orlando, Fla.
  7. Providence, R.I.
  8. Tampa, Fla.
  9. Houston
  10. Hartford, Conn.

On the flip side, these cities have the lowest mortgage denial rates and borrowers there are the least likely to be denied a mortgage:

  • Minneapolis
  • Salt Lake City
  • San Jose, Calif.
  • Milwaukee
  • Cincinnati
  • San Francisco
  • Portland, Ore.
  • Columbus, Ohio
  • Kansas City, Mo.
  • Louisville, Ky.

Source: “LendingTree Reveals the Cities With the Highest Rate of Denied Mortgage Applications,” LendingTree (April 24, 2018)