Getting an offer accepted on a home — a monumental task in some markets — is only one of the initial steps in the homebuying process. For many buyers, the success of their homebuying efforts hinges on the ability to secure financing, and thousands of mortgage applications are denied each year.
Though the share of homes bought with cash is at historic highs, according to the National Association of Realtors, the overwhelming majority of home purchases are made with a mortgage. Understanding how mortgage lenders process, and sometimes deny, these loan applications can help prospective buyers succeed.
In the past several years, high home prices and mortgage rates have impacted the sale of homes and thus the demand for home loans; overall, mortgage applications for single-family, nonmanufactured homes have fallen 33% from their 2021 peak, according to my analysis of 2024 data filed by lenders under the Home Mortgage Disclosure Act. During this same period, the share of mortgages denied for high debt-to-income ratio and insufficient collateral, both related to high prices, have risen.
Potential home buyers in the current market can use this data to their benefit — guarding against a mortgage denial by bolstering their down payment and being cautious of overvalued home listings.
Mortgage applications fall, stay low
Ultra-low interest rates beginning in 2020 helped drive explosive demand in the housing market. This pushed home prices skyward, and the dollar amount of new mortgages climbed significantly. Since 2022, that growth has slowed — interest rates climbed and buyers tightened their purse strings, throttling demand.
The average home loan amount climbed 4% in 2024, to about $376,200, after falling slightly (-2%) from 2022 to 2023.
However, over the past six years, the share of mortgage applications resulting in originations versus those resulting in denials hasn’t changed much. From 2019 to 2024, originations accounted for anywhere from 70% to 73% of application outcomes, and denials accounted for 7%-8%. In the most recent year of data (2024), those figures were 71% and 8%, respectively.
Denial reasons shift slightly
In 2024, the denial reason most commonly cited by lenders was debt-to-income (DTI) ratio, listed as the primary reason in 36% of mortgage denials. The second most common was collateral (17%). Both of these factors can be heavily influenced by home prices, and both have risen over the past six years of analysis.
DTI: When determining your ability to repay a home loan, lenders examine your income versus your debt obligations, including new debt represented by the mortgage you’re applying for. When home prices and thus mortgage sizes outpace income growth, it follows that DTI ratios would increase, making home loans riskier. While there isn’t a hard and fast rule on what makes a DTI denial-worthy, aiming for a DTI of less than 36% is a good target for home buyers.
Collateral: Loan collateral refers to the value of the home. Applications denied for this reason involve an appraisal gap, where the house is worth less than what you plan to pay for it. If a borrower is unable to fulfill their mortgage obligations, a lender needs to ensure it can sell the home and recoup most of its losses. A home requiring a loan larger than its actual value (determined by appraisal) is too big of a risk for a lender to take.
How to use this data
Buying a home in 2025 can be a challenge. Though the balance between buyers and sellers has started to level off in some local markets as inventory has risen, prices overall remain high. And going through the process of finding the right home and making an offer only to have your financing fall through would be disheartening, to put it mildly. Knowing why lenders are denying loans can help borrowers protect against this disappointment.
Preapproval: Getting preapproved for a mortgage doesn’t promise that everything will go off without a hitch, but it certainly increases the odds and lets the seller know you’re prepared. Some real estate agents even require a preapproval before showing you homes. Having preapprovals from a few lenders when you begin home shopping shows that lenders believe you’re creditworthy and gives you a head start on finding the best home loan.
Down payment: A large down payment can reduce the amount you need to borrow and thus reduce your estimated DTI ratio. While a 20% down payment isn’t required for a mortgage, it is a solid goal amount. Many lenders offer mortgages with far smaller down payments, making ownership more attainable. But the larger your down payment, the cheaper your monthly obligation. If you manage to put 20% down on a conventional loan, it will also save you from paying private mortgage insurance, an addition to your monthly payment designed to protect the lender.
Home price: A home that appraises for less than what you’ve offered is much harder to finance. So be wary of making competitive offers on overpriced homes, and be extra cautious of getting into bidding wars. Lean on your real estate agent to help judge if an asking price is reasonable given the local market.
Credit history: Maintaining solid credit should begin long before you start shopping for a home, as things like on-time payments over a long period of time signal to the lender that you’ll likely be making your mortgage payments as well. Still, it’s never too late. Make your payments on time and maintain reasonable debt levels consistently to lay a solid credit track record.
The 2024 mortgage application data filed by lenders with the Consumer Financial Protection Bureau, as required under the Home Mortgage Disclosure Act, is the most recent data available.
NerdWallet looked specifically at home purchase mortgage applications for single-family, site-built (not manufactured) homes. “Total applications” is the sum of applications: originated, approved but not accepted, denied, withdrawn by applicant, and file closed for incompleteness. The share of loan applications that are either originated or denied do not add up to 100% because other actions are taken on some applications, including being withdrawn, closed for incompleteness or purchased, for example.
