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.
In the third quarter of 2023, denial rates were 30 percent for Black applicants, while Hispanic applicants had the second-highest denial rates at 22.1 percent. For all races, the denial rates significantly fluctuated between 2019 and 2023.
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.
Scope: Mortgage applications from home buyers for first-lien, owner-occupied, residential mortgages for 1-4 unit homes between 2018-2022. In 2022, mortgage lenders approved 72% of purchase mortgages – the lowest in 5 years.
Getting approved for a mortgage can be tough — lenders review every aspect of your finances, including your income, credit history and outstanding debts. CNBC Select compared more than a dozen mortgage companies and compiled a list of the easiest mortgages to qualify for.
The 28% rule
The 28% mortgage rule states that you should spend 28% or less of your monthly gross income on your mortgage payment (including principal, interest, taxes and insurance). To gauge how much you can afford using this rule, multiply your monthly gross income by 28%.
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.
If you are currently repaying other debts that limit the amount of cash available for future payments, you can get denied even if you have a good credit score. Multiple credit cards with high balances or large loans with more than half the total balance remaining will not help you in your mortgage-seeking endeavors.
The table below shows the percentage of homes without a mortgage compared to the total number of available homes on record from 2010 to 2022. 2 These figures show that the percentage of mortgage-free homes has increased steadily, from 32.78% in 2010 to 39.28% in 2022.
The 50% rule in real estate says that investors should expect a property's operating expenses to be roughly 50% of its gross income. This is useful for estimating potential cash flow from a rental property, but it's not always foolproof.
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.
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.
The average mortgage payment is $2,715 on a 30-year fixed mortgage and $3,552 on a 15-year fixed mortgage. The median payment, a more accurate measure, is $2,617, according to the Mortgage Bankers Association.
All of this creates an atmosphere of risk around older borrowers. The upshot is that if you're over the age of 62, you're almost 30% more likely to get rejected for a standard mortgage.
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%.
The overall cost of homeownership tends to be higher than renting even if your mortgage payment is lower than the rent. Here are some expenses you'll be spending money on as a homeowner that you generally do not have to pay as a renter: Property taxes. Trash pickup (some landlords require renters to pay this)
You may be wondering how often underwriters denies loans? According to the mortgage data firm HSH.com, about 8% of mortgage applications are denied, though denial rates vary by location and loan type. For example, FHA loans have different requirements that may make getting the loan easier than other loan types.
Lenders typically consider various factors before approving a loan application. By focusing on building a good credit score, reducing debt, improving your debt-to-income ratio, and providing accurate documentation, you can enhance your eligibility for loan approval.
The Bottom Line. On a $70,000 salary using a 50% DTI, you could potentially afford a house worth between $200,000 to $250,000, depending on your specific financial situation.
The 35/45 rule
Lenders want your monthly debts to be affordable and recommend keeping your total monthly debt — including your mortgage payment — under 35% of your pretax income and 45% of your post-tax income.
To afford a $400,000 house, you typically need an annual income between $100,000 to $125,000, which translates to a gross monthly income of approximately $8,333 to $10,417. However, this is a general range, and your specific circumstances will determine the exact income required.