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Are mortgage lenders allowed to ask for this?

mja1970
New Member

Are mortgage lenders allowed to ask for this?

I'm in the process of trying to purchase a new home and I'm currently working with a lender.  While my credit scores look good, they informed me that my auto loan that has a current balance of $22k is causing my DTI to be a bit too high.  I am actually in the process of getting a payoff on this.   The lender informed me that once that is paid off, we should be good to go; however, they told me that I would need to provide them with a paper trail and show them exaxctly where the funds came from to pay this auto loan off.  How is where the funds came from any of their business?  Do they actually have a right to ask for that information?  I would think all that would matter is that it will be paid off and will no longer be a financial obligation of mine, thus significantly lowering my DTI.   I told them that I would be more than happy to get a letter from my lender stating that the loan has been satisified in full, but I explained that I feel it's not any of their business as to where the money to pay it off came from.  

 

Thoughts?

Message 1 of 12
11 REPLIES 11
iced
Valued Contributor

Re: Are mortgage lenders allowed to ask for this?


@mja1970 wrote:

I'm in the process of trying to purchase a new home and I'm currently working with a lender.  While my credit scores look good, they informed me that my auto loan that has a current balance of $22k is causing my DTI to be a bit too high.  I am actually in the process of getting a payoff on this.   The lender informed me that once that is paid off, we should be good to go; however, they told me that I would need to provide them with a paper trail and show them exaxctly where the funds came from to pay this auto loan off.  How is where the funds came from any of their business?  Do they actually have a right to ask for that information?  I would think all that would matter is that it will be paid off and will no longer be a financial obligation of mine, thus significantly lowering my DTI.   I told them that I would be more than happy to get a letter from my lender stating that the loan has been satisified in full, but I explained that I feel it's not any of their business as to where the money to pay it off came from.  

 

Thoughts?


Short answer is yes they can ask. They need to confirm that the source of funds to pay off the loan doesn't have an impact on another part of your UW. For example, if you take out a loan to pay it off, that doesn't solve the DTI problem. It's all part of the seasoning they do on all your funds. If the funds to pay it off are a gift, you'll need a letter from the gift giver saying it's a gift that doesn't need repaid and you're fine.

Message 2 of 12
Horseshoez
Established Contributor

Re: Are mortgage lenders allowed to ask for this?


@mja1970 wrote:

I'm in the process of trying to purchase a new home and I'm currently working with a lender.  While my credit scores look good, they informed me that my auto loan that has a current balance of $22k is causing my DTI to be a bit too high.  I am actually in the process of getting a payoff on this.   The lender informed me that once that is paid off, we should be good to go; however, they told me that I would need to provide them with a paper trail and show them exaxctly where the funds came from to pay this auto loan off.  How is where the funds came from any of their business?  Do they actually have a right to ask for that information?  I would think all that would matter is that it will be paid off and will no longer be a financial obligation of mine, thus significantly lowering my DTI.   I told them that I would be more than happy to get a letter from my lender stating that the loan has been satisified in full, but I explained that I feel it's not any of their business as to where the money to pay it off came from.  

 

Thoughts?


It is very much their business and they definitely have the right to ask.  What they need to know is if you are going into debt in a different way which makes your actual credit picture look better than it actually is.  The only way around this is to let such pay-offs age (I think most lenders don't look back more than 90 days)

I categorically refuse to do AZEO!

Message 3 of 12
mja1970
New Member

Re: Are mortgage lenders allowed to ask for this?

No, I have not taken out a new loan to pay this off (I'm not that stupid!).  That wouldn't make any sense, because I would just be creating brand new debt and it wouldn't change my DTI situation at all.  We have a very generous family member who is going to pay it off for us next week.  I just feel that it's a bit intrusive that they want to know where the funds came from.  If were to take out a new loan, they would see it on my credit report in relatively short order.

Message 4 of 12
CreditCuriosity
Moderator

Re: Are mortgage lenders allowed to ask for this?

Mortgages are very intrusive so gotta be ready to basically give anything they want and have explanations for everything.  If family member is paying it off will need something like a gift letter to lender saying that you don't have to pay said money back.  Although i would talk to your loan officer and proceed with caution as that is a very generous gift and has rules around it and probably amount as well most likely depending on loan program you are getting although other experts here that can answer all your details.  Mortgages fall through all the times for money not being seasoned.

Message 5 of 12
iced
Valued Contributor

Re: Are mortgage lenders allowed to ask for this?


@mja1970 wrote:

No, I have not taken out a new loan to pay this off (I'm not that stupid!).  That wouldn't make any sense, because I would just be creating brand new debt and it wouldn't change my DTI situation at all.  We have a very generous family member who is going to pay it off for us next week.  I just feel that it's a bit intrusive that they want to know where the funds came from.  If were to take out a new loan, they would see it on my credit report in relatively short order.


They wouldn't see it before closing.

 

The bottom line is they can and do ask for exactly these types of things. If you aren't comfortable with it, you can always walk away and then either apply again once it's paid off so you don't have to be asked or pay cash for the home.

Message 6 of 12
mja1970
New Member

Re: Are mortgage lenders allowed to ask for this?

Yes, this is probably the course that I am going to take, and I will be going with a different lender (there were other red flags with this lender aside from this).   I will wait until it has been paid off and for my credit reporting to update to reflect this so that I won't have to worry about explaining how it was paid.  

Message 7 of 12
Horseshoez
Established Contributor

Re: Are mortgage lenders allowed to ask for this?

In this case, asking about the source of the funds for paying off the car is something which will get inquired about by literally every mortgage lender I've ever heard of.  This simply doesn't qualify as a red flag of any sort.

I categorically refuse to do AZEO!

Message 8 of 12
Mortgage-Specialist
Established Contributor

Re: Are mortgage lenders allowed to ask for this?

It's not a matter of - do lenders have the right to as. They won't lend without it. These are the Fannie/Freddie guidelines, unfortunately we all have to abide

Message 9 of 12
nicholhowdy346
New Visitor

Re: Are mortgage lenders allowed to ask for this?

You answered it correctly. I got it. Thanks

Message 10 of 12
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