10 Cities Where You’re Most Likely to Be Denied a Mortgage
Does the American dream of owning a home feel impossible to attain? It's certainly a lot harder if you live in one of these areas.
Owning a home is still part of the American dream, but for many, it’s only a dream because they can’t qualify for a mortgage. New research from LendingTree found that nearly 1 in 10 borrowers get denied for a mortgage. On a national level, 9.8 percent of loan applications are denied. The good news is, mortgage denials are at the lowest level since the financial crisis, and the lowest since at least 2004. But they’re a lot higher in some areas than in others. So what’s standing in the way of people getting a home sweet home of their own? Read on to find out what might earn you a rejection—and the cities where that’s most likely to happen.
The potential problems with your application
According to LendingTree, which analyzed data from more than 10 million mortgage applications using the most recent available Home Mortgage Disclosure Act (HMDA) data for 2018, there are a few main reasons for rejection. The chief stumbling blocks were an applicant’s debt-to-income (or DTI, the ratio of your monthly mortgage payment to your income) and credit history (which includes credit score). These figures are a change from two years ago when the factors were nearly the same. LendingTree notes that this may reflect the impact of higher home prices and interest rates on the DTI in 2018. Other top reasons included a lack of collateral, incomplete applications, and unverifiable information. Did you know that these 8 sneaky things might be lowering your credit score?
Where you live is significant, too. Good luck if you’re in the Sunshine state. Florida had the distinction of being home to the top four cities where it’s toughest to get a mortgage. Miami, Orlando, Tampa, and Jacksonville were ranked Numbers 1 through 4 in terms of denial rates. They all had debt-to-income as a leading cause, but Miami and Tampa had disproportionately high rates of collateral as a denial reason. Who else rounded out the top ten places where you’re most likely to get denied a mortgage? Detroit, Birmingham, Houston, San Jose, New York, and San Antonio. Here’s a lowdown on these cities—and the places you might fare better. And remember: Getting out of debt isn’t impossible. Here’s how one couple paid off $78,000 of debt in just two years.
Beautiful Miami had the worst denial rate: 11.6 percent. According to LendingTree, the trouble spot was debt-to-income, which was cited in 32 percent of loans that weren’t approved. In second place was collateral, at 22.7 percent. What’s going on here? “Florida attracts a lot of outside money from retirees and foreigners but has a huge hospitality industry that has somewhat low wages. So the outside influences could be bidding up prices, but the incomes of local working residences are not keeping up,” says Tendayi Kapfidze, chief economist at LendingTree. “It’s more racially diverse than most states, and minorities have higher denial rates. Climate change might also be making some Florida real estate too risky for some lenders.” Miami is home to Miami Beach, one of the 10 most expensive neighborhoods in the country.
Two key factors that contributed to Orlando’s 10.9 percent denial rate: debt-to-income (36.5 percent) and credit history (18.8 percent). Your credit history can make or break the deal when it comes to getting a mortgage, and it’s one of the 10 things you need to focus on if you want to buy your first house in five years.
Ruth Lee, executive vice president of Take Three Technologies, a provider of tech solutions for the mortgage industry, offers additional insight. “The housing affordability index is off the charts. You have loads of service workers trying to move into that market, and they can’t qualify,” she says. According to the Orlando Regional Realtor Association, the overall median price of Orlando homes (all types combined) sold in June 2019 is $250,000, which is 5 percent above the June 2018 median price of $238,000 and up compared to the May 2019 median price of $243,000.
Tampa is the third-worst place to apply for a mortgage, with a 9.5 percent denial rate. Like other Florida cities, debt-to-income was a big reason for the no-go (33.1 percent), followed by collateral at 19.1 percent. Like Orlando, housing affordability is also an issue. But that’s far from being the only challenge. According to the Tampa Bay Business Journal, the investment data company RealtyHop ranked Tampa as one of the least affordable cities for homeowners based on its homeowner burden. What does that burden include? Median household income, median for-sale home-listing prices, local property taxes, and mortgage expenses, assuming the homeowner signed a 30-year mortgage with a 4.5 percent interest rate and a 20 percent down payment.
With its 9.5 percent denial rate, Jacksonville tied with Tampa. Again, the chief issue was debt-to-income ratio. Plus, the Jacksonville housing shortage has been in the headlines. A 2017 report by the National Low Income Housing Coalition stated there was a deficit of more than 36,000 affordable housing units in Jacksonville. Considering a move to escape this problem? These are the best 15 places to move to in the United States before they get too crowded.
While there’s been much talk about the rebirth of Detroit after some tough years, it’s a work in progress. “Detroit is still recovering from an extended period of economic decline,” says Kapfidze. The debt-to-income ratio was the leading reason for this city’s 9.4 percent denial rate.
Less than stellar credit histories contributed to Birmingham’s 8.8 percent denial rate. “Although I do wonder and don’t know how much manufactured housing loan data goes into HMDA, I do know Alabama has a large manufactured industry, which could be impacting those numbers,” says Lee. “Poor people are hard to qualify.” To change your financial situation for the better, you might want to consider switching careers and looking into one of the 21 most in-demand jobs for 2020.
Houstonians were denied 8.7 percent of the time, mostly because of debt-to-income ratio. Houston, like some other cities in Texas, suffers from a lack of affordable housing. According to the National Low Income Housing Coalition, Houston had the lowest per capita rate of available affordable units in the state, followed by Dallas, Austin, and San Antonio. Mike Scott, a senior mortgage loan originator with Independent Bank, explains how people can hit speed bumps with debt-to-income ratios: “It’s hard to know actual costs for taxes, insurance, and HOA dues, for example, so an initial approval based on initial calculated debt ratios could be completely out of line with reality.” On the flip side, these are the 15 cheapest cities to live in the United States.
All the Silicon Valley wealth has upped real estate prices and the cost of living in San Jose and throughout the Bay Area. It’s not surprising that 8.7 percent of people who applied for mortgages were denied because of their debt-to-income ratio. According to Zillow, the median home value in San Jose is $991,000. And that’s an improvement for potential home buyers, as San Jose home values have declined by 9.7 percent over the past year. In case you were wondering, these are the 15 most expensive places to live in the United States.
The cost of living takes a big bite out of the bank accounts of those who call the Big Apple home. In fact, high costs are a big reason so many people are leaving New York. Again, debt-to-income kept people from getting that dream home. It was a major factor in the loans denied.
“The largest component driving the denial of mortgages in New York City is purely the cost of real estate and the closing costs,” says Kevin Leibowitz, owner of Grayton Mortgage in Brooklyn. “This might seem obvious, but even well-qualified borrowers need to make that much more to qualify. Someone who is making $100,000 a year outside of New York City could have many options to choose from in terms of housing. But within the confines of the city, that income doesn’t buy much. And the closing costs are much higher than other states/municipalities—[including a] 1.9 percent mortgage tax!”
He says recent median home prices were $1,322,100 in Manhattan, $718,400 in Brooklyn, and $517,800 in Queens. “In most areas outside of New York City, this would put you in the category of luxury housing,” he adds. “But in New York, this would be the bottom rung of the market.”
San Antonio is the tenth place where you’re most likely to be denied a mortgage, with an overall denial rate of 8.4 percent, mostly because of an applicant’s debt-to-income ratio. According to senior loan officer and branch manager Joe Thweatt with Axia Home Loans, “home prices [in San Antonio] have increased while wages have either remained stagnant or not increased at the same rate. Not enough inventory of available housing leads to higher prices, and there are fewer available buyers able to afford the available inventory.”
Where the odds are better
Real estate is local, as they say. So while one city can be challenging for those seeking a mortgage, there are other places where your chances of getting approved are a lot better. According to LendingTree, the top ten places where you’re least likely to get denied include:
- Minneapolis, Minnesota
- Salt Lake City, Utah
- Kansas City, Missouri
- Virginia Beach, Virginia
- Portland, Oregon
- Washington, D.C.
- St. Louis, Missouri
- Boston, Massachusetts
- Richmond, Virginia
- Raleigh, North Carolina
What do these cities have going for them? Kapfidze weighs in: “Salt Lake City has a high number of two-income households, making homeownership more accessible. It is also less diverse than most cities on this list. Kansas City and St. Louis have a good balance between home prices and incomes, and Washington, D.C., has high incomes but a large geographical area with affordable homes outside the core beltway area. Minneapolis is relatively affordable and also one of the least diverse large cities, which biases its denial rate down.” Because of its affordability, Kansas City made our list of the 50 best places to live in the United States.
Success strategies for getting approved
There’s no magic formula for getting approved for a mortgage, but there are some steps you can take to look good to a lender.
First, review your credit, and if necessary, try these 11 ways to improve your credit score. And make sure to correct any errors before applying for a loan. Also, don’t shoot for the moon. As much as you want the perfect house, if you can’t comfortably pay for it, get the best house you can that fits your budget. Pay off and pay down as much debt as you can prior to shopping for a mortgage.
Sean Hundtofte, chief economist with online mortgage lender Better.com, offers the following advice. “Your income and how well you manage your existing debt help determine whether you’ll satisfy your mortgage payments every month, but so will your payment history,” he says. “Failing to pay your electric, Internet, or other recurring bills on time will affect your credit reports and scores.”
Furthermore, during the approval process, your lender will request that you provide proof of funds and income to close your loan. Says Hundtofte, “Especially if you are self-employed, make sure you’re collecting this ahead of time.”