Higher mortgage rates push application denial rates up: St. Louis Fed

One reason for the rise in mortgage application denials at higher interest rates is that the borrower's debt-to-income ratio is coming in too high, according to the St. Louis Fed research. Lenders use that ratio to measure how much of a borrower's income will be eaten up by debt payments each month, including a proposed mortgage payment.

"When rates rise, the entire distribution of debt-to-income ratios shifts to the right, pushing a larger share of the applicant pool above the hard thresholds where lenders start saying 'no,'" the researchers wrote. "Rising rates don't just price people out of the houses they want; they lock people out of the credit they need."

Lenders prefer to see that ratio at 36% or below, but depending on other factors — including credit history, assets and income — they may approve an applicant whose debt-to-income ratio is higher, experts say.

However, for many lenders that do conventional mortgages, there's a hard cut-off at a 50% ratio, according to experts.