High Debt-to-Income Ratios Prompt More Mortgage Denials

October 15, 2018

debt ratio on blackboard with hand

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A high debt-to-income ratio has superseded poor credit history as the number one obstacle for mortgage applicants, according to real estate data firm CoreLogic. Though the number of borrowers who have been denied a mortgage has steadily declined over the last few years, nearly one in 10 were turned away in 2017, CoreLogic says. About 30 percent of those denials were attributed to debt-to-income ratio.

There has been a gradual increase in the average debt-to-income ratios among mortgage applicants over the last few years, rising from 35.1 in 2012 to 38.6 in 2018, according to CoreLogic. “Rising application DTI is likely a reflection of the erosion of affordability, as home prices have risen much faster relative to wage growth,” researchers write on the company’s blog, CoreLogic Insights. “A typical household’s mortgage payment (principal and interest only), for example, have climbed quickly due to fast-rising home prices and a higher interest rate. In the event of a negative income shock, higher DTI loans are at greater risk of default.”

Mortgage application denials by loan type. Visit source link at the end of the article for more information.

© Core Logic