Home Purchase Mortgage Calculators
Mortgage Program Calculators
Having a relative pay-off a loan before you apply for a mortgage should not create any issues but there are a couple of points to keep in mind.
First, when you apply for a mortgage, lenders typically request three months of bank statements. Depending on if the loan is paid off directly by the relative or if the relative gives you the money and you deposit the funds in your bank account before you pay off the loan, the transaction may appear on your bank statement. If a lenders sees a large deposit into, and payment from, a bank account, it may raise some questions with the lender. While this issue should not prevent you from qualifying for a mortgage with most lenders, your best course of action may be to have the relative pay-off the loan directly as opposed to the giving you the funds and you paying off the loan out of your bank account.
Second, when you pay-off a loan, that information should appear on your credit report. When the lender reviews your credit report they may ask how you paid off the loan but this is unlikely and should not create an issue. The positive news is that paying off the loan should have a positive impact on your credit score. Because it can take some time for transactions to appear on your credit report and improve your credit score we recommend that you pay-off the loan as soon as possible. Paying off the loan should boost your credit score, which could result in you paying a lower mortgage rate. Plus, paying off the loan should also improve your debt-to-income ratio which enables you to qualify for a larger mortgage amount. We provide a thorough overview of your credit score and the mortgage process on FREEandCLAR including how to use free services to review your credit report so you can track your progress after you pay-off the loan.