The housing market began early this year- two months before the usual spring ‘opening’. The spring market has been heating up each day as the demand is high even though interest rates are slowly rising. The inventory remains very low.
In an analysis that used 10 million mortgage application records from the Federal Financial Institutions Examination Council’s Home Mortgage Disclosure Act 2017, it was found that one in every ten mortgage applicants had been denied. The data was collected from mortgage applications from over 6,000 financial institutions.
Most mortgage applicants were denied due to credit history and/or the debt-to-income ratio. Another reason for denial was ‘collateral’. Collateral includes the difference between the appraised value and amount of financing needed and other issues such as location of the property such as the property is located in a flood zone. Other denials included incomplete mortgage applications.
In today’s competitive market, having one in every ten mortgages denied only adds to complications being able to buy a home. In some metro areas, the denial rate was as high as 13%.
Birmingham, Alabama topped the list of denials (13%) where the leading cause of denial was credit history. New Orleans, Louisiana came in second with a 12% denial rate where two causes came in equally; credit history and debt-to-income ratio. Memphis, Tennessee was third, also with a 12% denial rate where the leading cause was credit history. Oklahoma City, Oklahoma was fourth on the list, with an 11% denial rate and credit history the leading cause. Miami, Florida rounded out the top 5 cities with an 11% denial rate and the debt-to-income ratio the leading causes.
It was shown that California has a significant problem in major cities such as Los Angeles, San Francisco and San Jose where the highest share of borrowers were denied due to their debt-to-income ratio.
Louisville, Kentucky, Memphis, Tennessee and Philadelphia, Pennsylvania had the highest rates of denied borrowers due to credit history.
Because the housing market is so competitive at this time, homebuyers should be well educated in the home buying process. Borrowers should be fully prepared when applying for a mortgage loan. If a would-be borrower understands the process and the reasons why mortgages are denied, they can be better equipped when working with banks and lenders.
If a borrower knows they will be applying for a mortgage loan and their credit score has dropped, they can contact an experienced and qualified attorney to help with their credit issues and raising their credit score. Having a good credit score is key to being approved for a home mortgage loan and affects the mortgage interest rate.
If you would like to purchase a home, consider using a real estate attorney. A real estate attorney can advise on both mortgages and purchases on a home. Your best best is to use a real estate attorney that is also a licensed real estate agent. Keith Gantenbein, of Gantenbein Law Firm, is an experienced Denver real estate attorney and licensed Colorado real estate agent. Mr. Gantenbein is experienced in all aspects of mortgages, including loan-to-debt-ratios and mortgage denials. For more information, call 303-618-2122, or visit www.gantenbeinlaw.com.