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#1971763 - 10/24/14 02:17 PM Home construction but collateral is other 80 acres
Sage Offline
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Joined: Aug 2005
Posts: 914
The purpose of a one-time close loan is to build primary dwelling but we are only taking a separate 80 acre tract with a rental home on it. Does ATR apply?

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Ability to Repay/Qualified Mortgage Rule
#1971807 - 10/24/14 02:57 PM Re: Home construction but collateral is other 80 acres Sage
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,844
Bloomington, IN
Yes. The loan is dwelling secured therefore it is a covered transaction and there is no exemption for acreage in the ATR rules.

Unless you can apply one of the exemptions found in 1026.43(a) you will have to apply the ATR rules.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#2001936 - 03/16/15 10:24 PM Re: Home construction but collateral is other 80 acres Sage
Mel in WA Offline
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Joined: Mar 2013
Posts: 1,185
What if the purpose was to build a dwelling and the separate 80 acre tract did NOT include a rental home, which means there wouldn't be a lien on a dwelling (not built yet) when the loan closed. Does ATR still apply because a dwelling will eventually be there?

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#2002018 - 03/17/15 03:36 PM Re: Home construction but collateral is other 80 acres Sage
Mel in WA Offline
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Joined: Mar 2013
Posts: 1,185
Bump

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#2002111 - 03/17/15 06:16 PM Re: Home construction but collateral is other 80 acres Sage
Mel in WA Offline
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Joined: Mar 2013
Posts: 1,185
Here's the situation.....the lender would like to give this borrower a 3 year lot loan with a balloon, which would provide funds to begin constructing the residence at a slow pace (borrower owns the lot free and clear). When the loan closes, there is NOT a residence on the land, so a lien cannot be taken on a dwelling. However, we are not monitoring the progress of the dwelling, so they could obtain an occupancy permit and move in by maturity.

Should we consider ATR based on what the borrower intends to do with the proceeds? What if they change their mind and buy something else with the funds?

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#2002563 - 03/19/15 01:18 PM Re: Home construction but collateral is other 80 acres Sage
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,844
Bloomington, IN
the lender would like to give this borrower a 3 year lot loan with a balloon, which would provide funds to begin constructing the residence


How is this not a construction loan with a term greater than 1 year (12 months)?
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The opinions expressed are mine and they are not to be taken as legal advice.

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#2002674 - 03/19/15 05:27 PM Re: Home construction but collateral is other 80 acres Sage
Mel in WA Offline
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Joined: Mar 2013
Posts: 1,185
Yes, that's definitely what it appears to be.....but, our construction loan products have a maximum term of 12 months, so the lender is trying to be "creative" and fit this scenario into a lot loan product that has a balloon.

Is it acceptable to originate a balloon loan as long as the term is no longer than 5 years (60 months)? I'm looking at 1026.43(c)(5).

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#2002709 - 03/19/15 06:48 PM Re: Home construction but collateral is other 80 acres Sage
Mel in WA Offline
Diamond Poster
Joined: Mar 2013
Posts: 1,185
I misworded my question.....

Is it acceptable to originate a non-HPML balloon loan with a term longer than 5 years (i.e. 61 months) and NOT consider the balloon payment in the payment calculation?

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#2002840 - 03/20/15 01:11 PM Re: Home construction but collateral is other 80 acres Sage
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 46,844
Bloomington, IN
We don't do balloon payments but as I recall if the transaction is a higher priced cover transaction you must consider the balloon payment. If the transaction is not a higher priced cover transaction then you must consider the highest scheduled payment within the first 5 years after the first scheduled payment is due.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

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