Southern states had the highest mortgage denial rates in 2023: NAR

Prospective buyers face numerous obstacles on their journey to homeownership, with access to credit often serving as a major hurdle.

Mortgage denial rates vary significantly across the U.S., with some states seeing far higher rejection rates than others, according to a new report from the National Association of Realtors (NAR).

Three Southern states recorded the nation’s highest mortgage denial rates in 2023, the trade group reported in its Snapshot of Race and Home Buying in America. In an analysis of Home Mortgage Disclosure Act (HMDA) data, Mississippi led the way with 19% of mortgage applications rejected, followed by Louisiana at 18% and West Virginia at 15%.

Conversely, Alaska, North Dakota and Nebraska had some of the lowest denial rates, making homeownership more attainable for buyers in these states.

Realtor.com chief economist Danielle Hale explained that a range of financial factors contribute to mortgage denials. These include insufficient credit or income, changes in credit scores and high debt-to-income ratios.

“A loan-to-value ratio that is too high, either because of a limited down payment or an appraisal of the home that resets the value used to calculate this ratio, can also be a factor,” she said.

The type of mortgage also plays a role, with jumbo and nonconventional loans facing higher rejection rates. Jumbo loans exceed the Federal Housing Finance Agency‘s conforming loan limit, which currently stands at $806,500 for a single-family home for most of the country.

“A mix of borrower, loan, and market characteristics likely explains the state-level variation we see in mortgage denial rates,” Hale said.

Racial disparities

The report also highlights significant racial and ethnic disparities in mortgage approvals.

In 2023, 21% of Black applicants and 17% of Hispanic applicants were denied loans, compared with 11% of white and 9% of Asian applicants, according to HMDA data.

The primary reasons for rejection among minority applicants were high debt-to-income ratios and credit history issues. Additionally, Black and Hispanic borrowers were more likely to use Federal Housing Administration (FHA) loans, which, despite lower down payment requirements, often come with higher interest rates and additional fees compared to conventional loans.

“These differences in loan access and terms make homeownership more expensive and less attainable for minority buyers,” the NAR report stated.

Access to credit also varied by race across different states.

White applicants faced the highest mortgage denial rates in West Virginia (17%), Kentucky (17%) and Mississippi (16%). Among Black applicants, Louisiana (34%), Mississippi (33%) and South Carolina (33%) had the highest rejection rates.

Hispanic applicants saw the most denials in Louisiana (21%), Mississippi (20%) and New Mexico (20%), while Asian applicants faced the greatest barriers in Maine (12%), Florida (11%) and Montana (11%).