Nearly one in 10 borrowers get denied for mortgages and 8 percent of loan applications are denied on a national level, according to an analysis by LendingTree [1], which looked at data from more than 10 million mortgage applications.
LendingTree used the most recent available Home Mortgage Disclosure Act data set to find the main reasons for mortgage denials. The analysis [2] found that while credit history and debt were the biggest barriers for borrowers to get a loan, incomplete applications also played their part.
The study indicated that credit history and debt-to-income-ratios each responsible for 26 percent of denied loans, followed by collateral at 17 percent and incomplete applications at 14 percent. When the data was looked on a more micro scale, the study found that in some cities, denial rates were as low as 5 percent while in others they were as high as 13 percent.
In fact, debt was the biggest barrier for California residents, while credit history resulted in maximum mortgage loan denials for borrowers in Kentucky, Memphis, and Philadelphia.
Residents of Birmingham, Alabama, however, had it worst when it came to loan denials based on credit history. The study ranked the city as the top metro where borrowers were most likely to get a loan denial. With a 13 percent denial rate, the leading cause of rejection in Birmingham was credit history that was cited on 32 percent of failed loan applications.
Coming in a close second was New Orleans, Lousiana, where the loan denial rate was 12 percent with credit history and debt tied at 26 percent as the key causes for denial. Memphis, Tennessee earned the third spot on this list with a 12 percent denial rate and 34 percent of loans being denied due to bad credit history. Oklahoma City, Oklahoma; Miami and Orlando, Florida; Providence, Rhode Island; Tampa Florida; Houston, Texas; and Hartford, Connecticut; joined these cities on the top 10 metros with the highest mortgage denial rates.
Conversely, Minneapolis had the lowest mortgage denial rates at 5 percent with credit history and debt-to-income tied at 26 percent as the leading cause for denial. Salt Lake City, Utah; San Jose, California; Milwaukee, Wisconsin; and Cincinnati, Ohio rounded off the five metros with the lowest rate of loan denials.