By definition a construction loan is "initial construction" of a dwelling. What if a customer wants to double the size of their home, and the existing equity is not sufficient to support the new loan amount, and the lender needs to monitor the disbursement of the funds? Construction or HE? We are having trouble with the new definitions.

Are you asking for TRID purposes? If they own the home and you are advancing funds to improve the property it would be home equity.

If the contemplated loan will refinance an existing loan secured by the same property, the TRID purpose will be "refinance."

The sequence of options for that field is:

i. Purchase
ii. Refinance
iii. Construction
iv. Home Equity.

You start with Purchase and determine whether all or part of the proceeds of the loan will be used to purchase the property that will secure the loan. If yes, stop and use Purchase. If not, proceed to Refinance.

If any portion of the proceeds will refinance an existing obligation (to the lender or another party) secured by the property, stop and use "Refinance." If not, go to Construction.

If any portion of the proceeds will be used to finance the initial construction of a dwelling on the property, stop and use "Construction." If not, use Home Equity.

So in the case described above, you couldn't have a construction draw period with interest only payments that would be converted to permanent financing when the draw period is over (that's the way we would have handled this pre-TRID).

How does the bank keep track of the spending to make sure the funds are going to the project? Would you place the proceeds in a DDA or SAV and disburse when you get invoices?

How would that be disclosed on the LE?

The label that goes at the top of the form does not limit how you disclose. And the loan can be a construction loan even though it's disclosed as a Purchase or Refinance.

Cecile the lending staff at my institution struggle with what you are talking about every day. The distinction I make when I explain it, is that we have a managed construction product that can be sold when a customer is:

Purchasing property and building a house on it,
Refinancing property to build a house on it
Constructing a new house on owned land, or
A home equity loan for improvement to an existing home

We can have any of the TRID purposes, but our product is still the same managed construction product with the same I/O period, term length, UW process, etc.

And we would handle it even differently due to APR calc limitations and Appdx D involved with option 1 and 2 above.

We would do the construction/rehab portion as a separate transaction. The permanent phase would put the two together, if purchasing the land or refinancing current land were involved.