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Lending 101

Writer's picture: StonehouseStonehouse

Updated: Jun 18, 2021

The Big Five:

  1. Assets

  2. Credit Score

  3. Ratios

  4. Down Payment

  5. Employment

1. Assets:

  • Interested in liquid assets (assets that can be turned into cash immediately)

  • Want to see money you have in the bank that you can count on (looking for regular deposits)

  • Large deposits can be red flags (winning at the casino… not money we can count on)

  • 3 things your loan officer will ask of you:

    • 2 months of bank statements (all pages, even if blank!)

    • 30 days of pay stubs:

      • If you get paid 2x/month you will need 3 pay stubs

      • If you get paid every week you will need 5 pay stubs

    • W2’s for the last two years (include every job you’ve had, with contact information)

      • If commission: will need taxes for last two years (all pages, yes even the blank ones), you may need business returns

      • If going by W2s they look at gross income, if going by commission they look at net income

      • They want to see two years of steady income or a student who then obtained employment in their field (if a student you will need to provide transcripts and a diploma/degree)

2. Credit Score:

  • Can be the most important factor of the five

  • 640: typically the lowest lenders will accept (on occasion they may accept 620 if the other four areas are strong)

  • 740+ is considered excellent, best of the best (anything above 740 will get about the same rate as 740)

  • How to you fix credit? Pay off debt and give it time

  • 2/3 of score is based on paying bills on time (30 days is considered late)

  • Credit Bureau looks at: (they will look at other bills if they go to collections)

    • Mortgage (most important)

    • Car payments (or other means of transportation like boat, motorcycle, etc)

    • Credit Cards (want to show activity/”revolving debt”: using credit cards, paying them off, not having more than 30% of limit used)

    • It is good to show history as well, want to pay the oldest credit card down first, and then pay a little off of each credit card versus just paying one completely off

    • Don’t want to close out credit cards… good to show history of revolving debt (if done smartly)

    • Student Loans

3. Ratios:

  • DTI: debt to income ratio

  • How much do you owe a month/how much (gross) do you make a month?

  • 32% is good

  • 40-42% is a gray zone

  • 50%+ not likely you will get a loan (need to lower expenses or increase income)

4. Down Payment:

  • VA: 0%

  • Rural Development Loan: 0% down (income has to qualify, can’t make too much)

  • OH/KY bond programs

  • Conventional Loans:

    • 20% down is the best…no PMI

    • Other Convention Loans: (with PMI)

      • 10%

      • 5%

  • FHA: non-conventional, 3.5% down, allows greater ratios, lower credit scores

  • Money for down payment can be gifted, but there needs to be proof of funds on both sides and a gift letter stating that you do not have to pay the money back

5. Employment:

  • Want to show 2 years of reported income

  • This can include:

    • Changing jobs within the same field

    • A student who then obtained employment in his field

  • If laid off for 3 months and then obtained employment in same field… this would be okay (3 months is typical for finding new employment)


You want to get a preapproval letter as soon as possible!!



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