[Sandra]

I offered to pay off my car and taxes before applying for the loan but he suggested the above. He explained it but I’m was sleep deprived, never of this before and didn’t ask enough questions.

It sounds like he said I pay them off at the time of closing, but how?

[Jennifer]

If you are paying off debt to qualify, it is easier to pay it off through the closing, rather than in advance. If In advance, you have to show the documents to prove not only a zero balance and closed account, but to source where the funds came from. A car, for example, may take a couple of weeks to send a paid in full letter an account closure.

Paying it through closing means you pay the additional funds to the closing company and they make the payments to your creditors. Because this is part of the closing instructions from the lender, this is a way that they know that the debt is paid and you are no longer obligated for the monthly payment.

[Dora]

I just did this on a cash out refi. simple numbers for the example.

i took 100k out of my house, but had 20k in credit card debt.

my 100k cash out was reduced by my 20k debt amount. after closing, company sent a 20k check to my credit card, and i walked with an 80k check

otherwise, I’d have to pay off 20k, wait, get statement showing 0 balance, then close and get my 100k check. this takes longer and interest lock was in jeopardy.

[Shar]

As a real estate agent, I had a similar situation with a buyer (if I understand correctly)…

If you pay those things now, they won’t show up as paid for a whole billing cycle, which can cause delays in your home buying process. But if you set it up for those things to be paid at the time of closing, it’s just a smoother process that eliminates the chances of delay.

[Eric]

If it were a refinance I’d say he’s doing cash out. But if it’s a purchase they are just adding the debt payoffs to your cash to close numbers. This allows them to exclude the monthly payments from your DTI without you having to pay it off and paper trail it prior to clear to close. So you’re still paying it, just through the check you give to the title company and they disperse to everyone from there.

[Kevin]

Got a lot of people on here making their best *guesses*. You should recontact your broker and have him explain it so that you understand it.

[Tirza]

Might mean to ‘not rock the boat’ for what your finances look like on paper so that the lender doesn’t change their approval, conditions, etc for loan. Close on the house, then pay off your stuff.

[Mike]

You need to hear it directly from them….All we can do is speculate….Phone call and have them explain EXACTLY what they mean by that and don’t hang up until you are 100% understanding.

[Enilda]

Ask him. That’s his job to explain, but do not include that type of debt in your mortgage.

[Mike]

As in pay it off at closing because you’re doing a cash out refi and wrapping that cost into 30 years of payments? If yea – fire that loan person asap.

[Author]

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