I want to ensure that I am understanding the process correctly - if at the time of application the intent is to do a construction loan with permanent financing to follow then GMI would be collected at that time. Correct? The application would indicate construction to permanent. It is also my understanding that "construction" is only indicated on the application if the bank is only intending to the construction loan. Correct?

Correct.


This is an internal process. You just need to make sure loan officers make it clear (document) what the purpose of the loan is for.

You collect GMI for const/perm loans. Const only loans you do not.

Thank you - another question - would a separate application for the permanent financing be required?

No. An application is a request for credit. You received that when they originally applied. If you want to have them fill out another piece of paper (labeled an "application") you can, but it's not an "application" per any regulation.

Am I understanding this correctly?

If the loan is for construction only - and we do not intend to do the permanent loan - we would not need an application and we would not collect GMI.

Is this based on RESPA regs for temporary financing and "B" or what else?

Also does it matter if the customer owns the lot or is purchasing the lot for the construction loan?

Thanks!

We always obtain an application if we are doing a constuction loan and not doing the pernament financing. We mark through the government monitoring so it is not completed by the customer.

Deciding what disclosures to use we use this as a rule of thumb:

owns land & take out letter--GFE, no---Early TIL, no
purchase land & take out leter--GFE, yes---Early TIL no

That is correct. See the Commentary to 202.13(a)(3) and (5).




The loan is subject to RESPA because of the transfer of title to the first user; and a construction loan meets the definition of a residential mortgage transaction, therefore you have a RMT subject to RESPA. The ETIL would be required under 226.19(a).

subject to RESPA if doing the permanent, but if not doing the permanent does the mortgage company doing the permanent not do the truth in lending

If you make a construction loan and a portion of the proceeds are to transfer title to the first user (purchase the lot) the loan is not exempt from RESPA. See 3500.5.


. . . . The exemption for temporary financing does not apply to a loan made to finance construction of 1- to 4-family residential property if the loan is used as, or may be converted to, permanent financing by the same lender or is used to finance transfer of title to the first user. . . . .

You would need to give an ETIL for your construction loan.

Thanks Dan,

So - we would need the application if the customer is purchasing the real estate to contruct the homestead on - regardless of whether we do the permanent or not...or for how long.

Correct?

Thanks!

Not by regulation. See my reference to the Commentary for 202.13(a)(3).

I could use some help in understanding how this paragraph from the commentary applies in regard to the collecting of GMI. I thought I understood that a construction-only loan is generally exempt due to temporary financing, but this paragraph indicates that if a dwelling is "built" and becomes the principal dwelling within a year or "upon completion of construction", it would be subject to GMI. This doesn't reference a "permanent loan" or is that the assumption? Thank you.

4. New principal residence. A person can have only one principal residence at a time. However, if a person buys or builds a new dwelling that will become that person’s principal residence within a year or upon completion of construction, the new dwelling is considered the principal residence for purposes of § 202.13.