More mortgage applications are being rejected for ‘insufficient income.’ Here’s why

As high home prices and interest rates push up monthly mortgage payments, it’s harder for many consumers to even get a mortgage in the first place.

Last year, lenders denied loan applications due to “insufficient income” more often than any other point since records began in 2018, according to a new report from the Consumer Financial Protection Bureau.

Overall, 9.1% of home purchase applications among all applicants were denied in 2022, the consumer watchdog agency reported, higher than 8.3% in 2021 but a marginal decrease from 9.3% in 2020. Refinance applications were more frequently rejected, at a rate of 24.7% in 2022 — up sharply from 14.2% in 2021.

Insufficient income represented more than 50% of denials for Asian American applicants, 45% for Black and Hispanic applicants, and approximately 40% for white applicants — up from below 40% for each of these groups in 2018.

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The CFPB also reported that the average cost of a monthly mortgage payment increased 46%, to $2,045 in December 2022, from $1,400 during December 2021. Given the rising cost of payments and mortgage rates — both of which have responded to the Federal Reserve’s rate hikes — “none” of the recent trends in income-based denials should “be a surprise,” said certified financial planner Barry Glassman, founder and president of Glassman Wealth Services in McLean, Virginia.

“In most cases, income did not increase at the pace of average mortgage payments,” said Glassman, who is a member of CNBC’s FA Council.

The higher rates of income-based mortgage denials are not only attributable to higher…