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What this task is

This task collects documentation showing how a liability being paid off is funded when the payoff occurs before or at closing. The focus is on verifying that:
  • The liability has been fully satisfied or reduced as intended, and
  • The payoff used borrower funds from acceptable sources, not undisclosed financing.

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When this task is required

This task is required when:
  • A liability is marked as being paid off before or at closing, and
  • The loan program allows that liability to be excluded from the borrower’s ongoing obligations based on payoff.
It commonly applies to:
  • Installment loans,
  • Revolving debt, and
  • Other qualifying liabilities the borrower plans to eliminate to improve their qualifying profile.

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Why this task is required

Lenders must confirm that:
  • The liability is truly paid off or reduced to the level used in underwriting, and
  • The funds used are permitted per guideline (for example, personal funds, sale proceeds, or allowed gifts), rather than new undisclosed debt.
This ensures:
  • The borrower’s debt-to-income ratio after closing reflects real, sustainable obligations.
  • There is no double-counting of liabilities or hidden borrowing that would undermine the risk assessment.
Without clear evidence of payoff and source of funds, the lender may be required to treat the liability as ongoing, which can negatively affect eligibility.

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Documents needed to resolve this task

To satisfy this task, provide:
  • Proof of payoff or reduction, such as:
    • A paid-in-full letter,
    • A final statement showing a zero or reduced balance, or
    • A transaction history confirming the payoff amount was credited.
  • Evidence of the source of funds used to make the payoff, for example:
    • Bank statements or asset account statements showing available funds and the outgoing payoff transaction.
    • If proceeds from a sale or refinance were used, the relevant Closing Disclosure or settlement statement linking those proceeds to the payoff.
These documents allow the underwriter to remove or adjust the liability in the qualifying analysis with confidence that the payoff is both complete and properly sourced.