Many experts say it is a good time for prospective homebuyers to think about making a purchase – but for those who plan on getting a loan from a mortgage lender, there are some common reasons an application might be denied.
According to a new report from the National Association of Realtors, the main reason homebuyers of all ages reported having their application rejected was their debt-to-income ratio. Thirty-five percent of overall respondents cited this reason – including nearly 60 percent of people aged 65 to 73.
The next most common reason was an unspecified “other,” followed by low credit scores (21 percent). Fourteen percent said their income was unable to be verified, while 12 percent said they had insufficient funds for a downpayment.
Other reasons a mortgage application could get rejected include having an unpaid tax lien, having business debt or not having enough savings or assets, among many others.
Overall, about 31 percent of all homebuyers said the mortgage application process was either much more – or somewhat more – difficult than they had anticipated.
The good news, however, is that among all buyers, only 5 percent reported having a mortgage lender reject their application. The rate rose to 7 percent for those aged 40 to 54. Most respondents said they only had an application rejected once.
Among all homebuyers, the median percent of a purchase financed with a mortgage was 88 percent – amounts tended to decrease with age, from 92 percent among those aged 22 to 29, to 75 percent for those aged 65 to 73.
The top source of downpayment funds was primarily savings, followed by proceeds from the sale of a primary residence.
As previously reported by FOX Business, the Federal Reserve’s decision to cut interest rates by 50 basis points this week – a response to the coronavirus outbreak – could coax more buyers into the housing market.
“As we saw from 2018 into 2019, lower mortgage rates are a definite tailwind for home prices and housing activity thanks to increased affordability,” Colin McBurnette, Senior Portfolio Manager at Angel Oak Capital Advisors, told FOX Business. “[This week’s] move by the Fed should spur bank lending and we would expect this move, as it translates into lower mortgage rates, to be similarly constructive for the housing market.”
One area that could continue to struggle, however, is the luxury section of the market.