Denied mortgage application? Try homebuyer assistance programs

Database finds a chunk of denied applications can be salvaged

Denied mortgage application? Try homebuyer assistance programs

The majority of mortgage loan applications are declined for reasons that can easily be addressed with homebuyer assistance programs, according to a database from Down Payment Resource (DPR).

DPR found that 33% of all loan applications are denied for either insufficient cash-to-close or disqualifying debt-to-income ratios – both of which can be salvaged with the right homebuyer assistance program.

Declined loan applications could reduce the loan-to-value (LTV) ratio by an average of 5.85%. Lowering the LTV can open the door to more affordable first-mortgage scenarios, including conventional financing, reduced insurance costs and better interest rates.

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In addition, DPR also revealed that those denied are typically eligible for 10 multiple home assistance programs, indicating there are often alternative options for first-time homebuyers financing with requested assistance. Eligibility is often hinged on running loan application data, including location, home price, loan amount, income and homeownership history.

It’s not just first homebuyers who are missing out – mortgage lenders are in a position to benefit from increased public awareness of these programs. DPR said the large chunk of potentially recoverable loans “highlight a significant, low-cost opportunity for lenders to increase purchase volume.”

Read more: MGIC, DPR connect buyers to down-payment assistance programs

Rob Chrane, chief executive officer of DPR, said the industry should start packaging homebuyer assistance programs as a more viable option for the general homebuying population. 

“In light of National Homeownership Month and the state of the housing market, it is important for the mortgage industry to reflect on ways it can improve financing outcomes for homebuyers,” Chrane said. “Our analysis definitively shows that homebuyer assistance programs are the most promising pathway to homeownership. Yet, [these] programs are seldom offered as an option. It is my hope that this information will help lenders better serve their communities by showing that qualified homebuyers who need down payment assistance are not a niche market, but a major market that continues to grow.”

Read more about home loans for first-time buyers in the US here.