The average rejection rate for mortgage refinance applications increased to a decade-plus high of 25.6% this year, a jump from 15.5% last year. Meanwhile, rejections for overall mortgage applications rose to 22.6% in Oct., up from 13% in Oct. 2023 and 17.4% in Oct. 2022.
One in six (16%) mortgage holders have overcome being rejected for a mortgage in the past, highlighting that getting a home loan is not something to be complacent about. Research found that over half (54%) of homeowners who were rejected took longer than three months to be accepted for another mortgage.
Mortgage rates fluctuated significantly in 2023, with the average 30-year fixed rate going as low as 6.09% and as high as 7.79%, according to Freddie Mac. That range narrowed in 2024, with a spread of 6.08% to 7.22%.
Federal Housing Administration loans: 14.4% denial rate. Jumbo loans: 17.8% denial rate. Conventional conforming loans: 7.6% denial rate. Refinance loans: 24.7% denial rate.
Simply, if you're preapproved for a mortgage there is still a possibility you could be denied after. In fact, approximately 5,741 VA loans were preapproved but not accepted according to 2022 HMDA data. Let's explore more about what it means to be preapproved for a home loan and why you could be denied after.
January is the most wonderful mortgage time of the year
For borrowers looking to get the best rates, January offers the most competitive pricing with lenders offering a nearly 20 bps discount compared to the rates offered in June through October.
The lowest average mortgage rates on record came about when the Federal Reserve lowered the federal funds rate in 2020 and 2021 in response to the pandemic. As a result, the weekly average 30-year, fixed-rate mortgage fell to 2.65%, while the average 15-year, fixed-rate mortgage sunk to 2.10%.
The National Association of Home Builders expects the 30-year mortgage rate to decrease to around 6.5% by the end of 2024 and fall below 6% by the end of 2025, according to the group's latest outlook.
Can My Security Deposit Be Returned If My Mortgage Is Denied At Closing? If you have a contingency in place that includes an offer and purchase contract, you may be able to get your earnest money back. However, if you don't have it, you could lose it.
Fannie Mae: Fannie Mae's latest forecast predicts that 30-year mortgage rates will drop to 6.20% by the end of the year. Its forecast for 2026 has rates falling to 6.10%. Freddie Mac: In their December outlook, Freddie Mac researchers said they believe mortgage rates will go down "very gradually" in 2025.
There's no fixed timeframe following a mortgage denial. Nevertheless, it's advisable to consider a brief waiting period. This is because mortgage applications often entail a credit check, which has the potential to slightly decrease your credit score.
According to loan-level mortgage data from the Home Mortgage Disclosure Act (HMDA), 86.3% of 2020 applicants were approved for home purchase mortgages, with a median loan amount of $235,000.
Conventional Loans: In 2022, conventional loans had a denial rate of 7.6%, significantly lower than the FHA's 14.4%. Conventional loans, not backed by the government, typically have stricter credit and income requirements.
Taking Advantage of a Decrease: If interest rates drop after you've locked in your rate, but before your closing, you can request a Mortgage rate float down. This means you can ask to adjust your locked rate to match the current, lower market rate.
2021: The lowest 30-year mortgage rates ever
And it kept falling to a new record low of just 2.65% in January 2021. The average mortgage rate for that year was 2.96%. That year marked an incredibly appealing homeownership opportunity for first-time homebuyers to enter the housing market.
Today's rates seem high compared with the recent 2% rates of the pandemic era. But experts say getting below 3% on a 30-year fixed mortgage is unlikely without a severe economic downturn.
Currently, Union Bank of India and UCO Bank offers the lowest home loan interest rate starting from 8.30% p.a., followed by Bank of India and Bank of Maharashtra offering home loan at 8.35% p.a. onwards.
The short answer is: Pay attention to market dynamics. If interest rates have been stable, locking in your rate early may not be necessary. If rates are falling and are likely to continue in that direction, you may want to wait a bit before locking the rate since you could get a better rate in a few weeks.
The average rate on a 30-year fixed mortgage surged to 6.85% as of December 26th, 2024, rebounding for the second consecutive week.
High debt-to-income (DTI)
Before approving you for a mortgage, lenders review your monthly income in relation to your monthly debt, or your debt-to-income (DTI). A good rule of thumb: your mortgage payment should not be more than 28% of your monthly gross income. Similarly, your DTI should not be more than 36%.
How many mortgage preapprovals should I get? While it's a good idea to rate-shop with at least three lenders, you only need one preapproval letter to make an offer on a home.