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#1921774 - 05/09/14 03:56 PM Classification of loan
Marnie Offline
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Joined: Nov 2007
Posts: 437
We have an application for a loan where the customer wants to borrow money to tear down his entire house and rebuild from the foundation up. Would this be considered a Home Improvement home equity loan or should we classify this as a construction loan? As a comparison, while no disaster occurred with this loan, what about when homes are totally destroyed through fire or tornadoes--are the loans made contruction loans? I would think it would be construction which then would have draws and inspections, etc. I know general rules say you can't build a house more than once, but in this case that is exactly what they are doing. Asking not just for HMDA purposes but for classification purposes and risk.

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#1921941 - 05/09/14 07:14 PM Re: Classification of loan Marnie
Maggie80 Offline
Joined: Apr 2011
Posts: 64
I would think if you are building from the foundation up it is construction loan. We had a tornado thru our area last year and some were torn down completely and started over from the foundations and others were in better shape and could be repaired and those I think would be home improvements. I would that it would depend on degree of rebuilding. If there isn't enough there to be a home - it would be hard to improve it.
Same as when they tear down old houses in good parts of towns for the lots and then build an entirely different new house.

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#1921944 - 05/09/14 07:19 PM Re: Classification of loan Marnie
JSD Offline
Platinum Poster
Joined: Oct 2000
Posts: 512
You will read from some of the gurus, that you build once and everything after is home improvements.

Since the foundations is remaining, we would report that as a home improvement loan.

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