Why Higher Mortgage Rates Make It Harder to Buy a Home

Mortgage rates do more than make monthly payments bigger. They can also stop some people from qualifying for a home loan altogether.

A recent study found that when mortgage rates went up in 2022 and 2023, more homebuyers were denied for loans — even if their jobs, income, and credit stayed the same.

The Main Reason: Debt-to-Income Ratio

One of the biggest reasons lenders deny loans is something called a debt-to-income ratio, also called DTI. This measures how much of a person’s monthly income goes toward paying debts.

For example:

• If mortgage rates are low, the monthly house payment may stay affordable.
• But when rates go higher, the monthly payment also goes up.
• That higher payment can push a borrower’s DTI too high for loan approval.

This means some buyers who may have qualified a few years ago might not qualify today simply because interest rates are higher.

What the Study Found

The study also found that:

• Mortgage denial rates increased as mortgage rates increased.
• Debt-to-income ratio became the top reason lenders denied loans.
• Buyers with tighter budgets were affected the most.

Buyers May Still Have Options

Even though higher rates can make buying a home more difficult, many buyers still have options. Different loan programs, down payment assistance, co-borrowers, debt reduction, or choosing a different price range may help improve loan qualifications.

If you are thinking about buying a home, it may still be a good idea to speak with a licensed mortgage professional to review your options and understand what programs may be available for your situation.