A LendingTree study has revealed that credit history, including credit score, and debt-to-income ratio are the leading reasons behind mortgage application denials.
The two reasons each account for 26% off all mortgage application denials. In its study, LendingTree delved into data from more than 10 million mortgage applications using the most recent available Home Mortgage Disclosure Act data set.
Mortgage applications were also denied based on collateral (17%) and incomplete applications (14%). Other reasons, such length of residence and temporary residence, accounted for 10%.
"The current housing market is particularly competitive," LendingTree Chief Economist Tendayi Kapfidze said. "It's not unlikely for borrowers to be priced out of a particular housing market based on increasing home prices. The key for homebuyers is to become well-educated on the homebuying process as well as their own financial situations so that there are no surprises once they enter the market. Understanding the key reasons why mortgages are denied can help borrowers avoid missteps, prepare in advance, and compete effectively to secure their dream home."
LendingTree found that almost one in 10 borrowers get denied for mortgages, with the share of denied loan applications at 8% on a national level.
Most of the denied loan applications in California were due to debt. Los Angeles, San Francisco, and San Jose had the highest share of borrowers who were denied because of their debt-to-income ratio. Borrowers in Louisville, Ky., Memphis, Tenn., and Philadelphia were held back the most by their credit histories.