The pent-up demand due to the pandemic, low interest rates and a shortage of properties have created a booming housing market with near-record levels of refinancing activity. While typical home values are up 15% from a year ago, the housing market is expected to remain warm in many cities through the end of the year and into next year. According to the most recent mortgage data at the Home Mortgage Disclosure Act lending level, 12.1 million mortgage applications were approved in 2020 with an overall approval rate of 83.6%.
Mortgage approval rates vary depending on the purpose of the loan. Conventional single-family loan refinancing applications without an opt-out option had the highest approval rate at 86.9%. Home purchase loans had an almost identical approval rate at 86.3%, and cash refinancing applications were slightly less likely to be approved, with an approval rate of 84.9%. Compared to these types of loans, home improvement loans were the least likely to be approved – only 61% of home improvement loans were approved in 2020.
Mortgage loan approval rates vary not only by the purpose of the loan, but also by the demographics of the applicant, including race and ethnicity. Co-applicants of different races (“joints”) and non-Hispanic white applicants had the highest loan approval rates, both at 86.1%. Blacks, Native Americans or Alaska Natives, and applicants from two or more minority races experienced the lowest approval rates, ranging from 65.8% to 69.4%. The loan approval rate for Hispanic or Latino applicants was 74.8%, a figure higher than that of other minority groups, but still 11 percentage points lower than the approval rate for white borrowers.
The differences in loan approval rates are in part due to different credit profiles and types of applications across racial and ethnic groups. Members of minority groups are more likely to have lower incomes, lower credit scores, and live in economically disadvantaged neighborhoods. Yet research indicates persistent discrimination in the loan market and that even controlling for differences in financial health, minorities are denied loans at higher rates than their white counterparts.
Approval rates are highest in the Midwest, while they tend to be lowest in the South and Southeast. This is probably due to differences in local demographic makeup and socioeconomic status. At 90.6% and 90.1%, respectively, residents of North Dakota and South Dakota experienced the highest loan approval rates in the country. On the other end of the spectrum, residents of Mississippi and Florida faced the lowest loan approval rates, at just 74.7% and 77.1%, respectively.
To find the locations with the highest loan approval rates, Smartest Dollar researchers analyzed the latest Home Mortgage Disclosure Act data from the Federal Financial Institutions Examination Council, the US Census Bureau, and Zillow. Researchers ranked states based on mortgage approval rates. The researchers also calculated the total loan applications approved, the median house price, the median household income, and the share of the minority population, defined as the percentage of the population who are not non-Hispanic Caucasians.
The analysis found that in 2020, 83.0% of mortgages were approved in Tennessee, up from 83.6% nationally. Of all the states in the United States, Tennessee has the 20th lowest loan approval rate.
Here is a summary of the data for Tennessee:
– Mortgage loan approval rate: 83.0%
– Total loan requests approved: 235,945
– Median house price: $ 226,456
– Median household income: $ 56,071
– Share of the minority population: 26.7%
For reference, here are the statistics for the entire United States:
– Mortgage loan approval rate: 83.6%
– Total loan requests approved: 12,107,353
– Median house price: $ 287,148
– Median household income: $ 65,712
– Share of the minority population: 40.0%
For more information, a detailed methodology, and full results, you can find the original report on the Smartest Dollar website: https://smartestdollar.com/