Recent research suggests that about 8% of borrowers are denied when applying for mortgages, and certain cities actually have higher rates of rejected mortgage applications, according to mortgage loan marketplace LendingTree.
LendingTree set out to determine factors that contribute to borrowers being rejected, gathering more than 10 million mortgage applications with the help of the most recently available Home Mortgage Disclosure Act data set.
In its analysis of the HMDA data, usual indicators like poor credit history, debt-to-income ratio, collateral and incomplete applications were revealed to be the prevalent reasons behind mortgage application denial.
When examining those factors closely it was determined that credit history and debt were the biggest barriers to home application approval, which were each responsible for 26% of denied loans. These were followed by collateral at 17% and incomplete applications at 14%. All other reasons for denial were cited in less than 10% of denied mortgage applications, according to the company.
Additionally, LendingTree organized a list of cities that are more likely to have higher rates of rejection vs. cities with who had citizens that were more likely to be approved.
These are the top 10 cities with the highest mortgage rate denials, and why:
No. 1: Birmingham, Ala.
Denial rate: 13%
Top reason for denial: Credit history
No. 2: New Orleans
Denial rate: 12%
Top reason for denial: Debt-to-income ratio
No. 3: Memphis, Tenn.
Denial rate: 12%
Top reason for denial: Credit history
No. 4: Oklahoma City
Denial rate: 11%
Top reason for denial: Credit history
No. 5: Miami
Denial rate: 11%
Top reason for denial: Debt-to-income ratio
No. 6: Orlando Fla.
Denial rate: 9%
Top reason for denial: Credit history
No. 7: Providence R.I.
Denial rate: 9%
Top reason for denial: Credit history
No. 8: Tampa Fla.
Denial rate: 9%
Top reason for denial: Credit History
No. 9: Houston
Denial rate: 9%
Top reason for denial: Debt-to-income ratio
No. 10: Hartford Conn.
Denial rate: 9%
Top reason for denial: Debt-to-income ratio
Also according to LendingTree, these are the top 10 cities with the lowest mortgage denial rates, and why:
No. 1: Minneapolis
Denial rate: 5%
Top reason for denial: Credit history
No. 2: Salt Lake City
Denial rate: 5%
Top reason for denial: Credit History
No. 3: San Jose Calif.
Denial rate: 5%
Top reason for denial: Debt-to-income ratio
No. 4: Milwaukee
Denial rate: 5%
Top reason for denial: Credit history
No. 5: Cincinnati
Denial rate: 6%
Top reason for denial: Credit History
No. 6: San Francisco
Denial rate: 6%
Top reason for denial: Debt-to-income
No. 7: Portland, Ore.
Denial rate: 6%
Top reason for denial: Debt-to-income ratio
No. 8: Columbus, Ohio.
Denial rate: 6%
Top reason for denial: Credit History
No. 9: Kansas City, Mo.
Denial rate: 6%
Top reason for denial: Credit history
No. 10: Louisville, Ky.
Denial rate: 6%
Top reason for denial: Credit history
It is worth noting that three Californian cities appeared on both lists, primarily because citizens in this state had the highest share of borrowers who were denied because of their debt-to-income ratio.
While many factors contribute to mortgage applications being denied, consumers need to inspect their credit history and how it relates to income intake. This may determine whether or not they get that mortgage to purchase their dream home after all.
