Looking for guidance on calculating an APR on a loan for a home purchase $220,000 plus $40,000 for improvements. Total loan amount $260,000. Interest only for 6 months while improvements are made and then goes into amortizing payments for 360 months.

Commentary to Appendix D states it "may also be used in multiple-advance transactions other than construction loans, when the amounts or timing of advances is unknown at consummation." My question is if we use Appendix D should the amount of estimated interest only payments be calculated based on $130,000 (half of the full loan amount) or $240,000 (full purchase price advanced at closing $220,000 + $20,000 half funds for improvements)?

Our software is using $130,000 which makes the initial payment disclosed on the LE and CD and interest only payment based on $130,000. This does not seem right since we know we are going to advance $220,000 for the purchase at closing.

My question is if we use Appendix D should the amount of estimated interest only payments be calculated based on $130,000 (half of the full loan amount) or $240,000 (full purchase price advanced at closing $220,000 + $20,000 half funds for improvements)?

This. Most vendor software cannot handle this sort of loan.

Our software is disclosing based on half of the loan amount, in this case $130,000. I am trying to determine if this is an issue that needs to be addressed or if it is acceptable even when we know and interest only payment based on $130,000 is not accurate since we are advancing $220,000 for the purchase at closing?

It is not accurate.

We disclose and originate two separate loans. One for the purchase, one for the rehab...then, if we may make the permanent loan, we also do #3. So, they get three sets of disclosures up front and close in steps.

We are doing a onetime close for the purchase, rehab, and permanent loan. The loan will have an interest only phase, usually 3 or 6 months, and then be put on a permanent payout. The monthly principal and interest payment that gets disclosed in the loan terms section of the CD is the estimated (based on half of the loan amount, not half the funds for improvement) interest only payment. This is the part that I am concerned about...The projected payments section shows the estimated interest only payment as the minimum and the amortizing payment as the maximum.