South Florida Mortgage Applications Denied at Higher Rate than Most of US
About 11 percent of mortgage applications are denied across the region, which is a higher rate than the 8 percent national average.
April 30, 2018 at 01:44 PM
4 minute read
Homebuyers in South Florida get turned down for mortgages at a higher rate than most other metropolitan areas in the U.S., a new study shows.
About 11 percent of mortgage applications in 2016 were rejected across the region, which is higher than the 8 percent national average.
LendingTree LLC — a Charlotte, North Carolina-based mortgage broker — studied more than 10 million mortgage applications for condominiums and single-family homes in 2016 in the 50 biggest U.S. metropolitan areas. The study looked at loans provided by traditional and nontraditional lenders.
The Birmingham-Hoover area in Alabama led the nation with the highest rejection rate of 13 percent, trailed by the New Orleans-Metairie area and Memphis, each at 12 percent, and Oklahoma City, which tied South Florida, according to LendingTree.
The South Florida residential real estate industry has been booming in recent years with developers focusing on luxury high-rise condos east of Interstate 95. With growth in this product, which is particularly popular with foreign buyers, an affordable housing crisis has enveloped most of the region, where locals are being priced out, studies show.
About a third of renters in each Miami-Dade and Broward counties are paying more than half of their income on rent, according to a study from Florida International University. One-third is considered a benchmark for housing costs.
The top reason for rejected mortgage applications in South Florida was an unfavorable debt-to-income ratio, or insufficient income for the requested mortgage and other payment obligations such as tuition debt and car loans, according to the study.
That's no surprise, said Edward Murray, associate director of FIU's Metropolitan Center and the author of studies on the region's housing affordability crisis.
“One of the issues that drives the whole issue of affordability to begin with in South Florida is that we have such low wages and household income compared to other metropolitan areas in the country,” Murray said.
The median household income in Miami-Dade County is $43,099, while the median single-family home value is $295,000, according to center data. In Broward County, the median income is $51,574, while the median home price is $298,000. In Palm Beach County, the median income is $52,878, while the median home price is $270,000.
The poorest 20 percent are struggling the most with their income decreasing 19 percent from 2007 to 2016, according to the center.
“Obviously, if your income is low and you accumulate debt at the same time because you need a car to go to work, you are obviously paying higher rents,” Murray said. “Any time you have income and cost of living showing up like that, you are going to have greater potential for debt, but also you are going to be in a position in terms of underwriting criteria where you are not going to be obviously bankable or less bankable than maybe households in other locations where incomes are greater, and maybe they show growth in wages over time and debt isn't as high as it is in South Florida.”
Eli Beracha, faculty director and associate professor at the FIU Tibor and Sheila Hollo School of Real Estate, cautioned against attributing the high rejection rate only to the disparity between housing costs and incomes.
There is a widening gap in South Florida between housing costs and incomes, but the disparity is much worse in other places in the U.S. where housing is more expensive, Beracha said. For him, the high rejection rate prompts another question.
“You need to ask yourself why people here more than in other places are applying knowing they won't meet those requirements,” he said.
He speculated some might be earning income from abroad that isn't factored into mortgage applications.
Ultimately, Beracha said it's unclear why the rejection rate is so high in South Florida but speculated other debt is a factor.
Other areas in Florida with high mortgage rejection rates are Orlando and Tampa at about 9 percent, according to LendingTree.
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