LendingTree Study: Credit History and Debt Ratio are Biggest Constraints for Would-Be Homeowners

April 24, 2018 at 10:30 AM EDT
New LendingTree study analyzes where and why mortgage shoppers get denied

CHARLOTTE, N.C., April 24, 2018 /PRNewswire/ -- LendingTree®, the nation's leading online loan marketplace, today released the findings of its study on the cities with the highest rates of denied mortgage applications and why mortgage shoppers in those areas have been denied.

Since the financial crisis, mortgage lending standards have tightened as underwriting has become more stringent. There are numerous reasons why a lender could deny a loan, from poor credit score to prior bankruptcies, but other reasons can include a lender's inability to verify a borrower's employer.

LendingTree delved into data from more than 10 million mortgage applications using the most recent available Home Mortgage Disclosure Act data set to find out the main reasons would-be borrowers were rejected, and to see if location has any correlation for rejection.

Given the dominance of credit history and debt-to-income as the leading reasons for denial across cities, LendingTree also looked at which factors appeared as disproportionately significant and calculated the denial reason in each city that was furthest from the national average.

Key findings:

  • Nearly one in 10 borrowers get denied for mortgages. On a national level, 8 percent of loan applications were denied.
  • Credit history and debt are the biggest barriers. The leading reasons for denial were credit history (which includes credit score) and debt-to-income ratio, which were each responsible for 26 percent of denied loans. These were followed by collateral at 17 percent and incomplete applications at 14 percent. All other reasons for denial were cited in less than 10 percent of denied mortgage applications.
  • Debt is a huge barrier to borrowers living in California. Three California cities (Los Angeles, San Francisco, San Jose) had the highest share of borrowers who were denied because of their debt-to-income ratio.
  • Credit history is holding borrowers back in Louisville, Ky., Memphis, Tenn. and Philadelphia. Among failed applications in these three metros, LendingTree found the highest rates of denied borrowers due to their credit history.

 

Rank 

MSA

Denial Rate

Top Reason For Denial

Disproportionate Reason for Denial

1

Birmingham, Hoover - AL

13%

Credit history

Credit history

2

New Orleans, Metairie - LA

12%

Debt-to-income ratio

Other

3

Memphis - TN, MS, AR

12%

Credit history

Credit history

4

Oklahoma City - OK

11%

Credit history

Employment history

5

Miami, Miami Beach, Kendall - FL

11%

Debt-to-income ratio

Debt-to-income ratio

6

Orlando, Kissimmee, Sanford - FL

9%

Debt-to-income ratio

Credit history

7

Providence, Warwick - RI, MA

9%

Credit history

Collateral

8

Tampa, St. Petersburg, Clearwater - FL

9%

Credit history

Mortgage insurance denied

9

Houston, The Woodlands, Sugar Land - TX

9%

Debt-to-income ratio

Employment history

10

Hartford, West Hartford, East Hartford - CT

9%

Debt-to-income ratio

Collateral

11

Atlanta, Sandy Springs, Roswell - GA

9%

Credit history

Credit application incomplete

12

Riverside, San Bernardino, Ontario - CA

9%

Debt-to-income ratio

Credit application incomplete

13

Philadelphia - PA

8%

Credit history

Credit history

14

Las Vegas, Henderson, Paradise - NV

8%

Credit history

Unverifiable information

15

Indianapolis, Carmel, Anderson - IN

8%

Credit history

Collateral

16

Nashville-Davidson, Murfreesboro, Franklin - TN

8%

Credit history

Employment history

17

Jacksonville - FL

8%

Credit history

Other

18

San Antonio, New Braunfels - TX

8%

Credit history

Credit history

19

Boston - MA

8%

Debt-to-income ratio

Debt-to-income ratio

20

Charlotte, Concord, Gastonia - NC, SC

8%

Credit history

Insufficient cash

21

Dallas, Plano, Irving - TX

8%

Credit history

Other

22

Baltimore, Columbia, Towson - MD

7%

Credit history

Credit application incomplete

23

Richmond - VA

7%

Credit history

Credit history

24

Los Angeles, Long Beach, Glendale - CA

7%

Debt-to-income ratio

Debt-to-income ratio

25

Phoenix, Mesa, Scottsdale - AZ

7%

Credit history

Credit application incomplete

26

Detroit, Dearborn, Livonia - MI

7%

Credit history

Collateral

27

Austin, Round Rock - TX

7%

Debt-to-income ratio

Debt-to-income ratio

28

Virginia Beach, Norfolk, Newport News - VA, NC

7%

Credit history

Other

29

Raleigh - NC

7%

Credit history

Employment history

30

San Diego, Carlsbad - CA

7%

Debt-to-income ratio

Credit application incomplete

31

New York, Jersey City, White Plains - NY, NJ

6%

Debt-to-income ratio

Debt-to-income ratio

32

Seattle, Bellevue, Everett - WA

6%

Debt-to-income ratio

Credit application incomplete

33

Cleveland, Elyria - OH

6%

Credit history

Credit history

34

Pittsburgh - PA

6%

Credit history

Credit history

35

Buffalo, Cheektowaga, Niagara Falls - NY

6%

Credit history

Credit history

36

Sacramento, Roseville, Arden-Arcade - CA

6%

Debt-to-income ratio

Other

37

Chicago, Naperville, Arlington Heights - IL

6%

Debt-to-income ratio

Collateral

38

St. Louis - MO, IL

6%

Credit history

Mortgage insurance denied

39

Washington, Arlington, Alexandria - DC, VA, MD, WV

6%

Debt-to-income ratio

Credit application incomplete

40

Denver, Aurora, Lakewood - CO

6%

Debt-to-income ratio

Employment history

41

Louisville, Jefferson County - KY, IN

6%

Credit history

Credit history

42

Kansas City - MO, KS

6%

Credit history

Employment history

43

Columbus - OH

6%

Credit history

Collateral

44

Portland, Vancouver, Hillsboro - OR, WA

6%

Debt-to-income ratio

Other

45

San Francisco, Redwood City, South San Francisco - CA

6%

Debt-to-income ratio

Debt-to-income ratio

46

Cincinnati - OH, KY, IN

6%

Credit history

Collateral

47

Milwaukee, Waukesha, West Allis - WI

5%

Credit history

Collateral

48

San Jose, Sunnyvale, Santa Clara - CA

5%

Debt-to-income ratio

Debt-to-income ratio

49

Salt Lake City - UT

5%

Credit history

Unverifiable information

50

Minneapolis, St. Paul, Bloomington - MN, WI

5%

Credit history

Collateral

 

The 5 leading causes of mortgage denials

The share of mortgage application denials that can be attributed to these reasons:

  1. Credit history (which includes credit score): 26%
  2. Debt-to-income ratio: 26%
  3. Collateral: 17%
  4. Incomplete applications: 14%.
  5. Other (length of residence, temporary residence): 10%

"The current housing market is particularly competitive," says LendingTree Chief Economist Tendayi Kapfidze, who led the study. "It's not unlikely for borrowers to be priced out of a particular housing market based on increasing home prices. The key for homebuyers is to become well-educated on the homebuying process as well as their own financial situations so that there are no surprises once they enter the market. Understanding the key reasons why mortgages are denied can help borrowers avoid missteps, prepare in advance and compete effectively to secure their dream home."

For more information on the study, visit: https://www.lendingtree.com/home/mortgage/cities-with-highest-rates-of-denied-mortgage-applications/.

Methodology
LendingTree analyzed over 10 million mortgage application records from the Federal Financial Institutions Examination Council's Home Mortgage Disclosure Act 2017 data set, the most recent available, which includes mortgage applications made during 2016. The data represents mortgage applications from over 6,000 financial institutions. https://www.ffiec.gov/hmda/history.htm

About LendingTree
LendingTree (NASDAQ: TREE) is the nation's leading online loan marketplace, empowering consumers as they comparison-shop across a full suite of loan and credit-based offerings. LendingTree provides an online marketplace which connects consumers with multiple lenders that compete for their business, as well as an array of online tools and information to help consumers find the best loan. Since inception, LendingTree has facilitated more than 65 million loan requests. LendingTree provides free monthly credit scores through My LendingTree and access to its network of over 500 lenders offering home loans, personal loans, credit cards, student loans, business loans, home equity loans/lines of credit, auto loans and more. LendingTree, LLC is a subsidiary of LendingTree, Inc. For more information go to www.lendingtree.com, dial 800-555-TREE, like our Facebook page and/or follow us on Twitter @LendingTree.

MEDIA CONTACT:
Megan Greuling
704-943-8208
Megan.greuling@lendingtree.com


 

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