The Hidden Potential in Declined Loans

In today’s market, affordability challenges are pushing more would-be homebuyers out of reach of the closing table. Yet many of those denials could have been avoided. Down Payment Resource’s (DPR) Declined Loan Analysis is uncovering just how often borrowers who appeared unqualified actually had solutions within reach, if only the right programs had been applied.

Our analysis examines a lender client’s declined loan data — the thousands of applications that were turned away for reasons such as insufficient cash to close or qualifying ratios — and applies DPR’s database of more than 2,600 down payment assistance (DPA) programs to determine how many declines could have been salvaged.

We’ve found that up to 40% of our clients’ declined loans would have been eligible for one or more homebuyer assistance programs. Even more compelling, 89% of purchase loan applications declined for cash-to-close or DTI issues may have been salvageable with the right DPA. On average, declined applications were eligible for 10 homebuyer assistance programs. 

Related: Stop leaving deals on the table: how lenders can use DPA to win the “missing middle”

Why a second look at declined loans pays off

The analyses we’ve conducted reveal a significant blind spot: after a loan application is declined, it’s typically abandoned. Teams direct their attention to active pipelines and loans nearing completion, rather than investing in preemptive interventions that might have prevented the decline.

Our process invites lenders to take a second look, one that can translate into measurable gains in production. When lenders see their own data laid out this way, the response is nearly universal: surprise. Few realize how much business slips through the cracks due to affordability hurdles that DPA could resolve. In several recent reviews, lenders have discovered that implementing a more robust second review process — one that screens declined applications for DPA eligibility before issuing a final decision — is a fast, low-cost way to improve close rates.

In fact, many lenders choose to repeat this analysis quarterly or semiannually to track progress. Doing so allows them to measure the effect of internal improvements and monitor whether their “salvageable” percentage declines over time.

Related: How DPA is rewriting the lending playbook

Awareness, not access, is the real barrier

DPR maintains the industry’s most comprehensive database of homebuyer assistance programs of more than 2,600 nationwide. These programs collectively offer an average of $18,000 in assistance per buyer, reducing the loan-to-value ratio by around 8.8%. For many borrowers, that’s the difference in getting approved.

Lenders often discover that the problem isn’t access; it’s loan officer awareness and utilization. Some of these lenders participate in state housing finance agency (HFA) programs, but fail to surface local assistance options. In others, their LOs aren’t fully trained on how to identify DPA-eligible borrowers. By quantifying missed opportunities, the analysis becomes a catalyst for internal change, prompting leadership to reassess sales training, operational workflows, and underwriting protocols.

Related: If you think DPA is a niche, you’re missing the bigger picture

Turning declines into closings

The impact of even modest improvements is substantial. In some analyses, reclaiming just a few percentage points of declined loans would translate to a 2% to 5% increase in overall loan production. For lenders navigating thin margins, that represents meaningful growth without incurring new marketing expenses or undertaking a major operational overhaul.

This also helps lenders recapture costs. Each declined application still incurs marketing, origination, and processing costs, without generating revenue. Salvaging even a fraction of those loans means turning lost investments into closings and strengthening relationships with qualified borrowers who might otherwise give up on homeownership.

Behind those statistics lies a larger housing reality. Nationwide affordability ratios have reached historic highs, with front-end housing ratios averaging significantly above levels seen in prior decades. That means more borrowers are bumping up against qualifying thresholds, even those with stable credit and employment histories.

In many cases, these were mortgage-ready individuals — borrowers who could buy if given help bridging a relatively small affordability gap. Without DPA awareness, they’re turned away, discouraged, and often lost to the rental market. DPR’s analysis sheds light on how frequently this occurs and how easily it can change.

What we’ve learned from hundreds of declined loan analyses

Across multiple years, we’ve observed consistent patterns: our customers exhibit fragmented awareness of available assistance from their lending teams, inconsistent second review processes, and underutilization of approved programs. For an individual lender, this could represent millions — or even billions — in lost revenue.

Reactions from lenders tend to follow a predictable arc. First comes surprise at the sheer scale of the opportunity. Then comes introspection: How can operations ensure no borrower is declined without first checking for available DPA? How can LOs better integrate these programs at the start of the application process rather than as a last resort? Ultimately, collaboration emerges as departments — from credit risk to marketing — begin working together to capture a greater number of eligible borrowers.

The timing for this kind of introspection couldn’t be better. The industry is confronting an affordability crisis that threatens to stall homeownership gains, particularly among first-time and moderate-income buyers. Meanwhile, assistance programs are becoming more generous, expanding income and price limits and offering higher aid amounts than in years past.

That means the opportunity is growing, not shrinking. As programs evolve, so does their ability to make a real difference in debt-to-income ratios and loan-to-value calculations. Even modest assistance can lower borrowing costs, improve pricing and eliminate the need for certain insurance premiums.

Behind the numbers: the human impact of DPA awareness

DPR’s Declined Loan Analysis isn’t just about numbers. It’s a diagnostic tool that helps lenders see where their processes may inadvertently exclude qualified borrowers. By combining data insights with DPR’s comprehensive program intelligence, lenders can better align their underwriting practices with the realities of today’s housing market.

For borrowers, the benefit is even more apparent. When lenders match applicants with the proper assistance earlier in the process, fewer people are told “no” when the honest answer could have been “yes, here’s how.” That means not only stronger production but also a more profound commitment to expanding sustainable homeownership.

Every declined application tells a story, and here’s how to change the ending

In a competitive lending landscape, efficiency isn’t just about speed; it’s about precision. DPR’s Declined Loan Analysis gives lenders the visibility to recover missed opportunities, strengthen second-review processes, and empower teams to leverage the programs already at their disposal.

As one industry observer put it, “Every declined application tells a story, and many of those stories don’t have to end in decline.” The data proves it. The tools exist. The next step is using them.

Lenders interested in uncovering their own hidden opportunities can request a customized Declined Loan Analysis. We’ll review a 12-month sampling of your declined, owner-occupied, purchase loan applications to determine their eligibility for DPA and other affordable lending programs. The results may be eye-opening and actionable. Contact us for more information.