Mortgage application is one of the biggest financial measures ever taken. Many applications are approved, but not all loans do so by underwriting. Naturally, it raises the question: How often does an underwriter refuse a loan?
On average, one in ten people will be denied a mortgage application. That means the majority are approved, but there are still a few reasons why underwriters might say no.
Understanding how underwriting works, why denials occur, and what you can do to avoid them will put you in a stronger position when applying for a mortgage.
What is underwriting?
Mortgage underwriting is a critical step in the home buying process that determines your lender’s ability to assess your financial health and pay off your loan.
They usually review as follows:
Credit: Borrowing and repayment history, current liability, credit score. Typically, traditional loans require a score of 620 or higher, but other loan types may have different requirements. Revenue: Revenue documents such as W-2, Pay Stub, and bank statements. Self-employed borrowers may need to provide a tax return or other proof of income. Asset: This refers to the type of funds you can access. This includes investments, retirement funds, savings cash, and current accounts.
Your lender will order a rating to make sure the home is worth the selling price. A licensed appraiser reviews the condition of the property, upgrades and recent equivalent sales to determine fair market value.
So, how often does an underwriter reject a loan?
In 2023, approximately 9.4% of all home purchase applications were denied, according to data from the Consumer Financial Protection Agency. This means that a tenth of the mortgage application has not been previously underwritten.
However, the rejection rate varies depending on the type of loan. The rejection rate for FHA loans was 13.6%, while traditional conforming loans were lowest at 7.9%, indicating some variation depending on the program selected. Refinance applications tend to have a higher rejection with an overall percentage of 32.7% in 2023.
So, while most buyers are approved, underwriters take into account factors such as loan type, credit score, debt-to-income ratio, and down payment size.
6 Reasons Why Your Mortgage Will Be Denied on Underwriting
Why do underwriters refuse loans? A future home buyer loan may be denied during the underwriting process for a variety of reasons, including:
1. Low credit score
Your credit score is one of the most important factors in mortgage underwriting. It reflects the history of borrowing and repayments, including credit cards, student loans, car loans, and previous mortgages. The score ranges from 300 to 850, with higher scores lowering the risk.
Recent changes in credit behaviors may also affect approvals. For example, if you suddenly make the most of your credit card or apply for multiple loans, you could potentially get a red flag while underwriting.
2. High debt-to-income ratio
A high debt-to-income ratio (DTI) can reduce the likelihood of mortgage approval. Each loan program sets its own DTI limits. To calculate, split your monthly total debt payments with your monthly income and multiply by 100.
3. Financial issues
Underwriters may reject a mortgage if they identify financial concerns beyond their credit score or debt-to-income ratio. This includes unusual or unexplained bank account activities, such as large, undocumented withdrawals and deposits.
Past payment history also plays an important role. Repeated missed mortgage payments, rents, or other late payments can indicate risk to the lender. Plus, great collections, liens, or recent bankruptcy could put approval in even more risk. Essentially, financial actions that suggest you may struggle to make a consistent mortgage payment can guide the underwriter to reject your application.
4. Changes in employment
Lenders want to see stable income when approving a mortgage. Frequent job changes and employment gaps can raise concerns about their ability to make consistent monthly payments. Most lenders require evidence of employment history for at least two years to demonstrate financial stability.
5. Low rating
A low valuation can affect loan approval and could result in lenders being denied during the underwriting process. This is because lenders cannot lend more to borrowers than the loan program allows. For example, the rating is much lower than the selling price of a home. Buyers will have to pay the difference or renegotiate a lower price.
6. Property issues
Property issues can increase the likelihood that a loan will be denied. Larger issues that emerged during home inspections, such as foundation damage and structural concerns, could raise the lender’s red flag. Early testing can help you identify potential issues before they affect mortgage approval.
Should I worry about underwriting?
If you think you need to worry about underwriting, the short answer is no as long as you meet the loan type requirements.
Let’s take a look at different types of mortgages and their basic qualifications.
Traditional Loans: Traditional loans typically require a minimum credit score of 620 and a debt return of less than 50%. We will also consider your financial and physical assets to get a traditional loan. Jumbo Loan: Designed for the above-listed homes with loan restrictions ($806,500 in 2025, or $1,209,750 in Alaska and Hawaii). Lenders typically require a credit score of at least 680 and a down payment of up to 20%.
On the other hand, government insurance loans have different minimum requirements.
FHA Loan: Supported by the Federal Housing Administration, allowing approval with a low credit score of 500. With a 580+ score, you qualify for a down payment of 3.5%. USDA loans: Supported by the USDA Department, these are limited to designated rural areas. You need a credit score of 640 or higher with incomes below 115% of the median region of most lenders and regions. VA Loans: Available to service members, veterans and surviving spouses through the Veterans Affairs Bureau. Many lenders accept a low score of 580, with a higher DTI ratio and no down payment required.
What if the underwriter refuses your loan?
Refusing to underwriting does not mean that homeownership is out of reach. That means you may need to make some adjustments. Here are a few steps to take:
Improve your credit score: Check your credit report, pay off existing debts, reduce your balance and show stronger financial health. Increased down payment: Lowering more money will reduce the loan-value ratio, lower monthly payments, and make a safer bet for lenders. Consider co-signers. Co-signers with stronger credits will help you qualify, but both parties share responsibility if they miss a payment. Reevaluate your home search: Consider cheaper properties that suit your finances and work with a real estate agent to guide your search.
FAQ
Will my approval be accepted after being rejected in underwriting?
Yes – If you are dealing with issues that have led to denial, such as improving credit or reducing debt, you can qualify with the same lender or different lenders.
Will refusal to a loan hurt your credit score?
Although a refusal itself does not affect your credit score, strict inquiries from applying for a loan can cause small, temporary DIPs.
How long should I wait after my application is rejected again?
It can be reapplied immediately, but it often takes several months to improve your financial profile first.
What is the possibility of being rejected after pre-approval?
Even after pre-approval, there is still a possibility that your loan will be denied on underwriting. Pre-approval is based on preliminary information, while underwriting reviews your credit, income, assets, liabilities, and the property itself. Changes such as new debt, missed payments, changes to work, or low valuations can affect approval. Most pre-approved buyers will proceed normally, but it is important to keep your finances stable until closure, as about one application is rejected during underwriting.
How often will FHA loans be rejected on underwriting?
FHA loans tend to have a higher rejection rate than traditional loans. In 2023, approximately 13.6% of FHA’s home purchase applications were denied during underwriting. Rejections can result from low credit scores, high debt-to-revenue ratios, or other financial issues, so meeting stable financial and program requirements can improve your chances of approval.
