Urban Wire Uncovering the Persistent White-Asian Mortgage Denial Rate Gap
Linna Zhu, Aniket Mehrotra
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photo of Asian family

Asian Americans, Native Hawaiians, and Pacific Islanders (AANHPIs) are often overlooked in equity discussions because of the model minority myth, which paints a misleading picture of uniform success. As a group, Asian people appear to have higher incomes and educational attainment, but this aggregation obscures significant ethnic and economic diversity within the community and the unique barriers they face when accessing homeownership, an important tool to build generational wealth.

We reported previously that Asian mortgage applicants were consistently more likely than white applicants to be denied a loan, despite having stronger credit profiles. In 2019, the national denial rate for Asian applicants was 8.7 percent compared with 6.7 percent for white applicants—a 2 percentage-point gap. This disparity persisted across all income levels, loan amounts, and debt-to-income (DTI) ratios and almost all metropolitan areas.

In commemoration of May’s Asian American Heritage Month, we investigated whether the denial rate gap has persisted amid shifting market conditions—including the COVID-19 pandemic, historically low interest rates in 2021, and skyrocketing rates in 2022—and pinpoint the potential causes of these gaps.

Asian applicants continued to be denied at higher rates than white applicants

The denial rate gap for purchase loans increased slightly during the pandemic, peaking in 2020 at 2.4 percentage points when interest rates were low, and landing at 2.2 percentage points in 2022. In addition, a new denial rate gap among refinance loans emerged at 2.5 percentage points when interest rates skyrocketed in 2022. The gap was particularly pronounced in cash-out refinance loans: 23.3 percent for Asian borrowers and 20.0 percent for white borrowers, a 3.3 percentage-point difference.

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On average, Asian applicants have higher credit scores and incomes, but they also have higher loan amounts and DTI ratios, as applicants tend to be concentrated in high-cost coastal areas. Our analysis shows that even at the same income level and DTI ratio, Asian applicants still received more denials in 2022. For Asian applicants with DTI ratios of 43 percent and above, 29.7 percent with annual incomes below $50,000 are denied mortgages, compared with 21.9 percent of white applicants in that income bracket. This gap continues up the income spectrum, even for those earning more than $150,000 annually.

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This trend is consistent across metropolitan areas with large Asian populations. In New York, Dallas, San Francisco, and Atlanta, the denial rate gaps were 4.2, 11.3, 7.6, and 6.0 percentage points, respectively. 

This denial rate gap persists for both conventional and government loans. Asian applicants were significantly overrepresented in conventional loans and underrepresented in Federal Housing Administration (FHA) and US Department of Veterans Affairs (VA) loans. Only 8.4 percent of applications from Asian borrowers were through government channels in 2022, compared with 23.8 percent for white applicants. FHA and VA loans tend to allow for more risk layering—a wider combination of higher DTI ratios and higher loan-to-value ratios. But even when government channels are considered separately, Asian applicants were more likely to be denied at all income levels. In addition, the denial rate gap persists in both bank and nonbank lending. 

Top reasons for mortgage denial and potential causes 

Asian applicants were significantly more likely to be denied because of high DTI ratios than for any other reason, accounting for nearly 42 percent of denials in 2022. Incomplete credit applications and lack of collateral follow in second and third place, as the reasons for 12.8 and 11.4 percent of Asian applicant denials, respectively.

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There could be several potential causes behind these denial reasons.

  1. Disruptions in income during the COVID-19 pandemic

    Asian households are significantly more likely to be small business owners, particularly in the accommodation and food services sectors, which were significantly affected by the COVID-19 pandemic. Reduction or loss of income may have increased DTI ratios for Asian borrowers, and even if income was reestablished, both conventional loans and FHA loans require at least two years of consistent income as part of the underwriting process. Self-employed households have already faced tighter income restrictions since the Great Recession, and lenders may require information on the financial strength of borrowers’ businesses to assess the likely consistency of borrowers’ future income.

  2. More expensive homes

    More Asian households are multigenerational—27 percent compared with the 19 percent national average, according to the Asian Real Estate Association of America 2024 report—meaning they are more likely to demand larger homes. In addition, Asian households tend to live in states with more expensive markets, such as California, New York, Texas, Washington, and New Jersey. Larger homes in expensive areas will have higher loan amounts, producing higher DTI ratios.

  3. Language barriers and limited English proficiency

    Given that 13 percent of Asian application denials are attributable to incomplete credit applications, it may be that language barriers play a role. Homebuying is complicated. Research has shown that limited English proficiency households have substantially lower homeownership rates than English proficiency households. Among the five most common languages limited English proficiency households speak at home, Spanish is first, but the next four are from the AANHPI group: Chinese, Vietnamese, Hindi, and Korean, affecting 21.4 percent of these populations.

Closing the persistent denial rate gap for Asian borrowers

Despite their growing presence, the AANHPI community is largely understudied and underrepresented in policy decisionmaking. Continued analysis is needed to reveal the true causes of persistently higher denial rates among Asian applicants. But we do know that Asian homebuyers face unique challenges accessing mortgage credit.

To better meet the credit needs of self-employed Asian households, the GSEs and the FHA might consider relying more heavily on cash-flow underwriting to provide greater flexibility for individuals and households with nontraditional income. Lenders can also consider offering more translation services for AANHPI households to help improve language access in the mortgage process. Lastly, housing counseling agencies and community organizations can expand services to improve financial literacy and awareness for homebuying assistance policies among the AANHPI community.

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Research Areas Housing finance
Tags Asian American and Pacific Islander communities Family and household data Federal housing programs and policies Homeownership Housing affordability Housing finance data and tools Housing finance reform Racial barriers to housing
Policy Centers Housing Finance Policy Center
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