Being turned down by a mortgage lender, especially after preapproval, can be a huge disappointment. If this has happened to you, though, you shouldn’t give up hope – there’s a reason for it, and there are strategies you can adopt to avoid denial in the future.
Let’s look at how often and why mortgage applications are denied, plus your options for improving your credit so you can reapply and ideally get the house (and loan) of your dreams.
Getting approved for a mortgage can feel like an uphill battle. You scrimp and save for the down payment, polish up your credit score, and submit reams of financial documents. But even after ticking all the right boxes, there’s still one final hurdle – the underwriter This gatekeeper has the power to make or break your homebuying dreams with just the stroke of a pen
So how often do underwriters actually deny mortgage applications? Let’s delve into the numbers and find out.
The Basics of Mortgage Underwriting
Before we get into the nitty-gritty details, it helps to understand exactly what underwriters do. These trained professionals dig deep into your finances to determine if you’re eligible for a home loan.
They carefully analyze factors like your
- Income and employment
- Credit history and score
- Assets and downpayment funds
- Existing debts and obligations
- Property value and condition
Underwriters use this information to assess your overall ability and willingness to repay the mortgage. If they deem the risk acceptable, they’ll approve your application. But if any red flags pop up, they may deny the loan or ask for more details before making a final decision.
How Often Are Mortgages Denied?
Now for the big question – just how likely is it that underwriters will reject your mortgage application?
According to the Consumer Financial Protection Bureau, the denial rate for all mortgage applicants in 2021 was around 8.3%. The rate was slightly higher in the two previous years at 9.3% in 2020 and 8.9% in 2019.
So in general, underwriters approve over 90% of mortgage applications. But denial percentages can vary significantly based on the loan type.
For example, Federal Housing Administration (FHA) loans typically face higher denial rates – around 12.4% in 2021. That’s because FHA has more lenient credit requirements, so riskier borrowers who don’t qualify for conventional loans may attempt this route.
The takeaway? Your individual chances of approval depend heavily on your financial profile and the loan product you choose. Borrowers with strong credit scores applying for conventional loans see much higher approval odds.
Top Reasons Mortgages Get Declined
While underwriting requirements vary by loan type, there are some common red flags that often lead to denials. Watch out for these trouble spots when applying:
Low credit scores – Most lenders look for at least a 620 FICO score, but scores of 720 or higher get the best rates and terms. Scores below 580 often lead to automatic rejection.
High debt-to-income (DTI) ratios – Your total monthly debt payments divided by gross monthly income should stay under 43% for approval. DTIs over 50% often get denied.
Insufficient downpayment funds – Conventional loans require at least 3% down. FHA loans need 3.5% down. If you can’t meet the minimums, you won’t get approved.
Limited credit history – First-time homebuyers with thin credit files sometimes get rejected. Underwriters look for at least 3 trade lines open for 12+ months.
Job changes or gaps – Employment instability or gaps over 30 days in the last 12 months can lead to denials. Underwriters want 2+ years of steady income.
Collections or late payments – Recent missed payments or unpaid collections make underwriters leery, even if your scores are decent.
Co-borrower issues – If your co-borrower has red flags like low scores or high DTIs, both of your chances suffer.
Property problems – Major issues found during appraisal like structural damage, inadequate utilities, or unpermitted additions can kill your approval.
What To Do If You Get Denied
Don’t panic if you receive the dreaded mortgage denial notice. While disappointing, it’s not the end of the road. You have options, such as:
- Asking your lender to reconsider the decision
- Requesting manual underwriting for a human review
- Fixing issues and reapplying in 6 months
- Considering alternative loans like FHA, VA, or subprime
- Enlisting a mortgage broker to match you with other lenders
The most important step? Get clarity on exactly why you were denied so you can create a game plan to improve your chances for next time.
Strategies To Avoid Mortgage Denial
While you can’t control underwriting guidelines, you can optimize your application. Here are some tips to boost your odds of smooth sailing:
- Aim for credit scores above 740
- Reduce debts to get your DTI below 36%
- Save for a downpayment of at least 10%
- Keep existing trade lines open to build credit history
- Stick with the same employer and income
- Maintain timely payments and low balances
- Thoroughly research the property before making an offer
- Work with an experienced loan officer or broker
With careful preparation and persistence, you can overcome underwriting obstacles. And nothing beats the satisfaction of finally clutching those mortgage approval keys to your dream home!
How often do underwriters deny loans?
The most recent report provided by the Consumer Financial Protection Bureau reveals that the overall denial rate for home purchase applications for all applicants was 8.3% in 2021, lower than that in 2020 (9.3%) and in 2019 (8.9%).
The report also shows that the denial rate of Federal Housing Administration (FHA) loan applications differed from the overall average, at 12.4% in 2021.
Check for errors in your credit report
Between the credit bureaus and the creditors that play a part in developing your credit report, mistakes are bound to happen every now and then. These errors can lower your credit score and be a big headache to fix.
Common errors include outdated information, incorrect payment statuses, wrongfully duplicated negatives, and most importantly, fraudulent accounts. You should eliminate any chance of error by sifting through your credit report with a fine-toothed comb. If you find anything that looks unusual, take the proper steps to dispute your credit report.
How Often Do Underwriters Deny Loans?
FAQ
How often do mortgages fall through in underwriting?
A mortgage underwriter typically denies about 1 in 10 mortgage loan applications. A mortgage loan application can be denied for many reasons, including a borrower’s low credit score, recent employment change or high debt-to-income ratio.
How likely is it to be denied a mortgage after pre-approval?
Do underwriters look at spending habits?
What is the top reason applications get denied through underwriting?
… reject mortgages often involve credit score issues, income shortfalls, high LTV ratios, property type or recent changes in your financial situationJan 31, 2025
How often do underwriters deny loans?
You may be wondering how often underwriters denies loans? According to the mortgage data firm HSH.com, about 8% of mortgage applications are denied, though denial rates vary by location and loan type. For example, FHA loans have different requirements that may make getting the loan easier than other loan types.
Do Mortgage underwriters deny loans?
While most loans do get approved, mortgage underwriters do deny some loans based on different factors. It all depends on whether they think you can repay the loan. Loan approval can also vary depending on where you live and the loan type you’re applying for. For which reason would an underwriter reject a risk?
Why do underwriters not approve mortgage loans?
Common reasons underwriters don’t approve loans . A mortgage loan application can be denied for many reasons, including a borrower’s low credit score, recent employment change or high debt-to-income ratio.
Can an underwriter reject a loan application?
The underwriter can reject the loan application if there is a high risk to the lender. Loan denial, like the suspension, is not permanent. Your lender can advise you on how to improve your financial situation and when you can reapply. How long does it take for mortgage underwriting and final approval? How often do underwriters deny loans?
How many mortgage applications are denied?
According to the mortgage data firm HSH.com, about 8% of mortgage applications are denied, though denial rates vary by location and loan type. For example, FHA loans have different requirements that may make getting the loan easier than other loan types. Do underwriters approve most loans?
What is the typical duration of mortgage underwriting?
Loan underwriting usually takes about 30-45 days from the start of underwriting to the closing of the loan. It is generally the lengthiest part of the mortgage process.