Selling my car so close to closing

[COliveA]

Hello,

 First time homebuyer and I am advised by my loan processor that I will need to sell my car to bring down my back end ratio.   My closing is set for 9/29 and I am not sure how this will affect my loan since the balance will not update before closing since car is being purchased after 9/15.   What documentation will I need to submit to the underwriter?   Will a bill of sale be enough documentation?

[MortgageMama]

First, a few questions for you... Is the car your only means for transportation to work? You will need to show that you have the ability to maintain your job without it - unless it's a secondary auto or you plan to use public transportation. Perhaps you could provide a little bit more about the transportation plans?

As for selling it on 9/15 and closing on 9/29, I really wouldn't wait much longer. Assuming you will sell it to a dealer, they can provide you with the bill of sale, the title docs, and then your lender can obtain a credit supplement showing the loan was paid in full. The dealer would absolutely need to overnight the payoff. If this is a condition in order to obtain your Clear to Close, I recommend you get right on it because there are other parties at play. Kind of surprising that at nearly the 11th hour your DTI was determined to be too high.

[COliveA]

Hello,  

Just a little more info,  my sister will be purchasing the car.  Transportation will not be an issue due to I can carpool with my significant other.   I am mostly concerned because it is a private sale.  

[MortgageMama]

I'll wait for other lenders to chime in, but I think you may have an issue here. I haven't seen this recently, but when I did, the underwriter would not accept a primary transportation mode being eliminated without a documented back-up plan. As in a secondary vehicle. Reason is that you are at the mercy of others to make it to work, which your income is the source of repayment of the loan.

[Gladius]

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@MortgageMama wrote:

I'll wait for other lenders to chime in, but I think you may have an issue here. I haven't seen this recently, but when I did, the underwriter would not accept a primary transportation mode being eliminated without a documented back-up plan. As in a secondary vehicle. Reason is that you are at the mercy of others to make it to work, which your income is the source of repayment of the loan.

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Why would an underwriter care about that?   I never heard of them digging "that" deep.  If both adults worked but only had one car in the household, I doubt they would ask "what is your back-up plan if that car gets totaled or stolen?"  If when looking at your bank statements, would they "question" why a two-income household only has 1 car loan listed?

[MortgageMama]

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@Gladius wrote:

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@MortgageMama wrote:

I'll wait for other lenders to chime in, but I think you may have an issue here. I haven't seen this recently, but when I did, the underwriter would not accept a primary transportation mode being eliminated without a documented back-up plan. As in a secondary vehicle. Reason is that you are at the mercy of others to make it to work, which your income is the source of repayment of the loan.

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Why would an underwriter care about that?   I never heard of them digging "that" deep.  If both adults worked but only had one car in the household, I doubt they would ask "what is your back-up plan if that car gets totaled or stolen?"  If when looking at your bank statements, would they "question" why a two-income household only has 1 car loan listed?

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The only reason I mention this digging deep by an underwriter is because selling the car for the purpose of qualifying and the timing. Had the car been sold way back, it wouldn't come up. There was no mention of a two income household that I can see or two autos. No one must have an auto loan for sure. It's just the timing that concerned me. An underwriter can always ask for a letter of explanation and that could take care of any concerns, so the applicant would want to carefully word their letter, if requested. 

[COliveA]

A little more info,  my sister will be purchasing with certified funds.   My concern is it being so close to the closing we don't have time to have the check clear with the bank and my current loan company update and clear the title.   So that's why I asked if the bill of sale will be enough for the underwriter due to the time limit.  

[DSTforlife]

i think this question is best posed to your loan officer.  I'd hate for you to get information from this forum at the 11th hour that could derail your closing.

good luck.

[ShanetheMortgageMan]

IMO the underwriter isn't likely to ask about your method of transportation to/from work after you sell your car.  However, since you'll obviously still be able to get to work I feel at most you'll just need to write a letter of explanation on how you'll get there.  I wouldn't expect anything to be asked though.

As far as documenting everything, assuming your sister is purchasing the car for the balance of the loan then you and your sister should go down to the bank who has the car loan and she should just have the funds made out to the bank - that way you don't have to wait until they clear your account and then turn around and cut a new check to the bank that has the car loan.  If your sister is buying the car for more than the balance then she can get two checks, one to the bank for the payoff and another for the excess net profit that'll go to you.  Since it's certified funds, the car loan lender should mark it paid very quickly (I'd think the same day, but perhaps the following day) and the car loan lender can generate a "paid in full" letter or your mortgage loan officer can request their credit vendor do a "credit supplement" to confirm the $0 balance.

If you are trying to use these funds to close (meaning you are selling it for more than the car loan and the excess you'll use for your down payment or closing costs) then you'll also need to provide:  proof of ownership (your car insurance showing the VIN should suffice), valuation for the car (Kelley Blue Book is acceptable) and documentation of funds paid (the certified check(s)).  The bill of sale should also list the parties to the transaction, the make/model/year/VIN of the car sold, the $ amount of the sale, and it should be signed/dated by all parties.