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.

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.

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.