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#1757775 - 11/14/12 02:33 PM Construction Loan
countrytink Offline
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Illinois
The borrower currently owns the land and wants to build his home on it. Is this considered a purchase money loan?

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#1757779 - 11/14/12 02:35 PM Re: Construction Loan countrytink
rlcarey Online
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rlcarey
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Galveston, TX
In what context?
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#1757782 - 11/14/12 02:37 PM Re: Construction Loan countrytink
RR Joker Offline
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Another question you may need to answer.

Do you have a permanent commitment for the long-term loan from another party?
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#1757848 - 11/14/12 03:47 PM Re: Construction Loan countrytink
countrytink Offline
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Illinois
There is no "permanent commitment" for the end financing. We would be doing the construction financing based on a 1 year loan. I'm trying to see if this would be considered a purchase money security interest since they own the land. I'm not sure what disclosures might be effected such as earlies and TIL

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#1757866 - 11/14/12 04:17 PM Re: Construction Loan countrytink
RR Joker Offline
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You would need to do disclosure for the construction loan as well as for a 'potential' permanent loan since you MAY make it.
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#1757948 - 11/14/12 06:40 PM Re: Construction Loan countrytink
countrytink Offline
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Posts: 48
Illinois
I have a "cheat sheet" that shows for a construction loan without permanent financing, only Reg Z applies for the TIL and Flood. I guess where I'm confused is since the borrower owns the land, is the construction loan treated as a purchase, refinance or just a plain old construction loan with no purchase of real estate?

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#1757953 - 11/14/12 06:50 PM Re: Construction Loan countrytink
RR Joker Offline
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RR Joker
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Sounds like your cheat sheet is incomplete (or needs further instruction/clarification). If you don't have a permanent commitment, you are on the hook for 3 days to disclose the construction and a potential permanent loan.

From RESPA: Emphasis added is mine.

(3) Temporary financing. Temporary financing, such as a construction loan. 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. If a lender issues a commitment for permanent financing, with or without conditions, the loan is covered by this part. Any construction loan for new or rehabilitated 1- to 4-family residential property, other than a loan to a bona fide builder (a person who regularly constructs 1- to 4-family residential structures for sale or lease), is subject to this part if its term is for two years or more. A “bridge loan” or “swing loan” in which a lender takes a security interest in otherwise covered 1- to 4-family residential property is not covered by RESPA and this part.

Last edited by RR Joker; 11/14/12 06:51 PM.
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

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#1758108 - 11/15/12 08:00 AM Re: Construction Loan countrytink
rlcarey Online
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Galveston, TX
I agree with RR. Without a take-out commitment in hand or solid plans to pay off the construction loan through other means at maturity, how can you not be contemplating permanent financing? Thus the statement "may be converted". The only other plan would be to foreclose at the maturity of the construction loan if the borrower cannot pay in full at that time, which I doubt is on the table.
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