Since the subprime mortgage crisis in 2007, lenders have increased the stringency of loan applications and have a lower percentage of bad loans. A large percentage of mortgage application denials are now the result of low credit scores.

According to the Home Mortgage Disclosure Act, in 2020, about 13 percent of mortgage applications, totaling nearly 650,000, were denied.

The reasons for mortgage application denials vary.

For three out of five, debt or credit problems were the reason they were initially denied.

One in five African-American applicants were denied because of poor factors in their credit history, a significantly higher percentage than for white or Hispanic applicants.

Of those approved after initial denial, 46% of whites were denied again or were not approved, followed by 27% of African-American applicants, 20% of Hispanics and 6% of other ethnicities.

Overall, the type of question that led to the denial was a key factor in whether the applicant was subsequently approved.

Applicants who were subsequently approved for a mortgage were more likely to report the following reasons for their initial denial

• Missing or incomplete documentation.

• Low credit scores.

• Appraisal discrepancies.

In contrast, applicants who were not approved were more likely to report the following reasons for their initial denial.

• Low credit scores.

• Bad credit history.

• Insufficient down payment funds.

• Action taken after application denial

Applicants who are subsequently approved are more likely to take some quick fixes after denial than are applicants who are not approved for a loan.

The actions taken are different for each individual depending on the reason for denial.

For both the non-approved and subsequently approved groups, most chose to take action to improve their credit scores and reduce their debt.

For the applicants who were subsequently approved, they were denied because of missing or incomplete documentation or valuation discrepancies.

As a result, it takes more time to gather the necessary funds or required documentation before approval is granted.

In addition, 78% of approved applicants would reapply to the same lender, and only 17% of those who were not approved said they wanted to reapply to the same lender.