Top Reasons for a Mortgage Denial
February 10, 2020
Low mortgage rates continue to push borrowing costs lower this year, but not every consumer is able to qualify. About a quarter of mortgage refinance applications are getting denied, according to a study from LendingTree of more than 10 million mortgage applications.
The top four reasons why applications were denied were debt-to-income ratio, credit history, incomplete application, and insufficient collateral.
Debt-to-income ratios continue to be a harbinger for mortgage applicants. Those ratios accounted for 26% of mortgage denials and proved to be the biggest barrier for borrowers living in pricey cities. Applicants in San Jose, Calif.; Honolulu; Bridgeport, Conn.; San Francisco; and New York City saw refinance applications denied the most for this reason.
Credit history contributed to 24% of denials, according to LendingTree’s study. The highest share of applicants who failed to get approval due to credit history were in Winston-Salem, N.C.; Louisville, Ky.; McAllen, Texas; and Birmingham, Ala. The cities all have household incomes that are below the national median of $63,179.
LendingTree found that the following metros have the lowest mortgage approval rates:
- El Paso, Texas
- McAllen, Texas
- Augusta, Ga.
- Albuquerque, N.M.
- New Haven, Conn.
- Memphis, Tenn.
- Virginia Beach, Va.
- Lakeland, Fla.
- Scranton, Pa.
For those trying to better their chances of a mortgage approval, lenders recommend examining their credit history and disputing any errors before applying, and paying attention to their debt-to-income ratio. “Don’t take out a new loan that stretches your ability to repay,” LendingTree states. “Pay down debt prior to applying for a loan, and limit spending.”
“Best Cities for Refinance Approval and How to Increase Your Odds,” LendingTree (Feb. 3, 2020)
Updated: July 30, 2021