Credit makes the world—and homebuying—go ’round, and it can be the deciding factor when it comes to moving from renting into homeownership. Denial rates vary state to state, so the National Association of Realtors® recently examined data from 2023 to give homebuyers some information as to where denial rates are the highest and lowest, and which groups they most impact.
The best states to buy in, according to the study? Alaska, North Dakota, and Nebraska, which all had drastically lower denial rates.
The toughest? A trio of Southern states: Mississippi (rejecting 19% of all 2023 mortgage applications), Louisiana (18%), and West Virginia (15%).
Some of the top reasons cited by lenders for denying a mortgage application, per Realtor.com® Chief Economist Danielle Hale, included insufficient credit or a change in credit score, increased debt, lower income, or a debt-to-income ratio that is too high.
“A loan-to-value ratio that is too high, either because of a limited down payment or an appraisal of the home that resets the value used to calculate this ratio, can also be a factor,” she added.
Mortgage denial rates also tend to vary by the type of loan used: nonconventional and jumbo mortgages see a greater number of rejections. (Jumbo mortgages are those that exceed the Federal Housing Finance Agency’s (FHFA) conforming loan limits, usually $806,500 for a single-family home.)
“A mix of borrower, loan, and market characteristics likely explains the state-level variation we see in mortgage denial rates,” Hale said.
Another hurdle was access to mortgage financing. “Even if a home seems within budget,” stated the report, “access to mortgage approval, mortgage rates, and loan terms play a crucial role in determining whether homeownership is attainable.”
Breaking Down Rates by Cohorts
Demographics play a part in the process as well, with Black (21%) and Hispanic (17%) applicants being rejected almost twice as often as white (11%) and Asian (9%) homebuyers.
Per the study, the primary reasons those applications were rejected included higher debt-to-income ratios and credit history. Black and Hispanic borrowers were also more likely to rely on Federal Housing Administration-insured loans. These loans offer lower down payment requirements but often come with higher interest rates and tacked-on fees, compared with conventional loans.
“These differences in loan access and terms make homeownership more expensive and less attainable for minority buyers,” notes the report.
Access to credit also varied for members of different racial and ethnic cohorts across states. The states with the highest denial rates by group were:
- White applicants: West Virginia (17%), Kentucky (17%), Mississippi (16%)
- Black applicants: Louisiana (34%), Mississippi (33%), South Carolina (33%)
- Hispanic applicants: Louisiana (21%), Mississippi (20%), New Mexico (20%)
- Asian applicants: Maine (12%), Florida (11%), Montana (11%)
Click here to read the National Association of Realtors’s full report
