Rishi - I believe you would have to repay it before applying for the loan - which would create the risk of not being approved.
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I'm agree with Ami and would expand on his comment about "risk of not being approved". Take the conversation to your MSLP lender and propose the offer to payoff the debt prior to loan approval. Your desire to minimize their risk is great, you just want to make sure their underwriting team agrees with you.