I am planning on buying a house in the next few weeks and my mortgage guy made me a very unusual offer.
The background details is that I am buying a home with assistance from a family member with a gift of money to supplement the down payment. I also currently have some credit card debt right now which I was planning to pay off at the end of the year when my bonus hits.
My mortgage guy wants to reduce the amount of the down payment by X amount and pay off the credit card with X amount. He wants to do this at closing and through the title company.
I thought this was a little odd and unnecessary, why go through the extra step of using the Title company to pay off a debt I can pay directly through an app?
What does the title company get out of this?
Is this normal?
Has anyone else done this?
Tl;dr
Mortgage guy wants me to pay off a CC debt through title company.
I don’t feel good about using the gift funds for something that is not their intended purpose, although I do understand that money is fungible.
It’s a smart financial move that will save me about $400 a month, but I can pay this dent on my own in a few months anyhow.
Finn said:
It might be necessary to bring your DTI under the qualifying threshold.
Did you ask him why?
Yeah. It’s almost definitely this. The title company gets nothing out of it. The reason he wants you to go through the title company is because he’ll be certain you actually paid it off. If you say you’ll pay it off and you don’t, the investor on the secondary market could make the lender repurchase the loan if they discover it wasn’t paid off. It’s likely their company policy.
Oak said: @Clarke
ok, i will point blank ask him this question when he calls me back today!
If it’s done through the title company no further proof is required. If you pay it off yourself the lender and you have to do a credit supplement to update the balance that reported on your credit at application.
That can be difficult and/or costly depending on the creditor, which is why your LO is suggesting the current path.
Finn said:
It might be necessary to bring your DTI under the qualifying threshold.
Did you ask him why?
He said it would be a smart financial move and would save me money. I am actually putting enough cash down for a 60% down payment so I am not sure why the loan would be affected?
Bran said: @Oak
LO here, if it wasn’t absolutely necessary he wouldn’t suggest it. It’s more hassle on his end. 99.99% it’s DTI related.
This is the only answer.
Sorry to say but he is not being transparent with you on this! Being a better financial move is true but at the end of the day not his decision to make for you.
The title company doesn’t get anything out of it, but the lender can show the title company printed the checks to payoff the account(s) at closing
It’s fairly normal, it may need to happen to get your debt to income ratio in line to buy the home, I would ask your LO directly why this is being done.
Oak said: @Finian
Ok, so this IS a standard practice! This did not come up at my last closing at all.
Your DTI was probably in line for the program at the time, no worries.
If the title company mails out the checks to pay off your accounts the lender is certain they will be paid off. It’s also a bit “cleaner” than having you pay them off mid process and waiting g for updated statements showing $0 balance.
Oak said: @Finian
Ok, so this IS a standard practice! This did not come up at my last closing at all.
You can do it on your end but you will need to produce a lot more docs.
You need to document the payoff from your bank with an account history dating back to what your LO has so there are no gaps. Then you need to verify from the credit card company - statement or account history not a screenshot off your app, then your LO needs to verify with a soft pull on credit report.
Or you just payoff at closing.
It sounds like your DTI is borderline (or too high) and he’s suggesting this to facilitate your approval or get you into a lower interest rate. Your plan to pay the credit card is just that—a plan. To qualify you without the credit card payments, they have to have the title company facilitate the payoff (or have you provide proof of payoff, but you probably don’t have enough time for that process because credit card companies just don’t work that fast).
I suggest asking your loan officer what he’s trying to accomplish, and ask him what difference it will make in your loan terms/payment and your total monthly obligations.
Simply ask him: “if I don’t do this do I still qualify for the loan at stated interest rate?”
If the answer is “no” then you know what you have to do.
If it’s “yes” then you have a choice and you really should consider doing it. Not only would it save you money monthly but you will have transferred the interest payment to the mortgage which would be a tax write off.
You should do it, you seem like a very honest person and are worried about “deceiving” the person who is helping you, so just ask them if they think it’s a good idea and if they are comfortable with how you are using their gift. They want to help you and this approach would help you the most!
Less documentation for the program is done with the title company. If done prior to closing, you will need to provide more documentation. The person sounds like they are trying to help you save some unnecessary documentation by doing it that way. If I can help further, let me know. TY Matt
Oak said: @Zion
Ahh, yes the documentation has been a PITA, I can see why he would go that route!
That is the exact reason I do it that way as well. Anything that can be done to eliminate documentation or reduce it is always the best route. Wishing you the best outcome. TY Matt