Debt: A Common Reason for Mortgage Denial in Washington and U.S.

October 14, 2018
Last updated:
January 13, 2022
Post cover image
In This Article

A recent report showed that having too much debt is one of the most common reasons for mortgage denial in Washington State and elsewhere across the United States. With too much debt on a person’s plate, it can be difficult to have enough money leftover to manage paying mortgage payments in full and on time every month.

Good News: Mortgage Denials Have Declined Overall

Property information and analytics company CoreLogic published an in-depth report on mortgage denial rates. They used data obtained through the Home Mortgage Disclosure Act (HMDA) to measure denial rates and also identified the most common reasons for mortgage denial in the current economy.

One of the more positive trends identified by this study had to do with overall denial rates. As it turns out, mortgage loan denial rates “have steadily declined” over the past few years. Nationwide, the rate is actually lower today than in 2004 (during the last housing boom). This means that a higher percentage of borrowers are getting approved for loans these days.

But what about those who do get turned down for mortgage loans across Washington and nationwide? What are the most common reasons for denial these days? According to this study, the debt-to-income ratio was the most commonly reported issue that caused problems for borrowers.

View WA State Mortgage Rates

Debt-to-Income Ratio One of the Most Common Issues

Definition: A debt-to-income (DTI) ratio is a numerical comparison between the amount of money a person earns (gross income) and the amount spent on recurring monthly debts. For instance, a person who uses 40% of his or her income to cover the monthly payments on credit cards, auto loan and mortgage has a debt-to-income ratio of 40%.

While mortgage lenders look at a variety of factors when reviewing loan applications, the DTI ratio is one of the most important. And, as it turns out, it leads to mortgage denials more than any other single factor.

According to the CoreLogic report, high debt-to-income ratio (DTI) was the culprit behind nearly 37% of denied home-purchase applications.

The second and third most common reasons for mortgage denial is credit history and collateral, respectively.

DTI Standards Are More Relaxed Today

There’s some good news on this front, from a borrower’s perspective. Over the last few years, both Fannie Mae and Freddie Mac have increased the maximum allowable debt-to-income ratio for the loans they purchase.

Both of these government-sponsored enterprises (GSEs) have raised their limits from 45% to 50%. That means home buyers today can qualify for a “standard” conventional mortgage loan with a DTI ratio as high as 50%, a higher cap than in the past.

Here are the key takeaways for consumers:

  • Mortgage lenders use debt ratios to ensure that a borrower is not taking on too much additional debt, and that’s good for all parties involved.
  • Over the last few years, debt-to-income ratio limits have eased. Some mortgage programs allow ratios of up to 50% these days.
  • Despite this easing trend, the DTI is currently the most common reason for loan denial in Washington State and nationwide.

Get an Instant Mortgage Rate Quote Today

Have Questions or Need a Mortgage Loan?

Sammamish Mortgage is a local, family-owned company that has been serving borrowers in Washington, Oregon, Colorado, and Idaho since 1992. Our mortgage financing professionals can work with you to help you determine which one of our mortgage programs is right for you. Please contact us if you have mortgage-related questions, or if you’d like to receive a rate quote.

Other Blogs You May Like
Things to Avoid After Applying for a Mortgage
October 25, 2023
7 min read
Things to Avoid After Applying for a Mortgage
Until closing, you need to avoid big purchases, opening/closing credit accounts, large cash...
Preparing for the Mortgage Application Process in Washington
March 27, 2023
5 min read
Preparing for the Mortgage Application Process in Washington
Home buyers in Washington tend to have a lot of questions about the mortgage application process....
Show 20 more posts
from this category

Connect with a Mortgage Advisor Today!

Whether you’re buying a home or ready to refinance, our professionals can help.

Compare Mortgage Rates in Your Area Instantly

No Obligation and transparency 24/7. Instantly compare live rates and costs from our network of lenders across the country. Real-time accurate rates and closing costs for a variety of loan programs custom to your specific situation.

Subscribe to our newsletter