Survey: In 2022, lenders denied a loan to 28% of mortgage applicants, down from 34% in 2021. It came as a surprise to many because they had been pre-approved.
NEW YORK – Applying for a mortgage is like taking a test to graduate. Except instead of a diploma, the prize is a home.
The “pass” rate on mortgage approval, though, is surprisingly low. Surveying 4,900 buyers, the Zillow Consumer Housing Trends Report 2022 finds that in 2022, 28% of applicants were denied a mortgage, down from 34% in 2021.
Often, denial comes as a surprise since the homebuyer first received a nod in the form of a “pre-approval.” Before home shopping, real estate agents typically require buyers to have a pre-approval.
Staying credit worthy
A lender verifies applicants’ credit, income and savings for a down payment and current monthly debt load before issuing them a pre-approval for a certain size loan. If a borrower increases his debt or otherwise alters his financial status after pre-approval, he could be rejected when he actually applies to buy a certain home, says Charles Chedester of Midwest Family Lending in Urbandale, Iowa.
Make sure a lender clearly outlines what financial changes can negate a pre-approval, Chedester says, adding that the drop in denials Zillow found in 2022 could be due to the fact that the mortgage business was unusually busy in 2021 and lenders didn’t take adequate time to verify pre-approval details or talk with borrowers.
Strengthening your position
Rejection can occur right away with a lender declining pre-approval. The Zillow survey finds that millennials reported a higher rate of denials at 39%. Moreover, 41% of borrowers of color reported being denied at least once.
“See a housing counselor from a HUD-approved agency [Florida listings at HUD.gov],” advises Mitria Spotser of the Center for Responsible Lending. “It’s free, and they can walk you through the lending process and let you know where you stand [financially].”
With advanced knowledge, borrowers have more insight into whether a rejection could be unfair, she adds.
Mortgage brokers, banks and financial institutions have different mortgage programs, and a borrower who’s rejected by one lender may find approval with another.
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