Bank wants to do a HELOC for a borrower who will getting their permanent mortgage (completed construction) from another bank. My understanding is that the permanent loan would be a residential mortgage transaction and no right of rescission. However, would the HELOC be considered a residential mortgage transaction with no RoR? It's possible the borrower might need funds from the HELOC to complete the permanent loan, but they might not. The definition of residential mortgage transaction refers to the acquisition or construction of the primary dwelling; it doesn't appear the HELOC is being used specifically for that purpose and would seem RoR would apply. If they use the initial draw to support the permanent financing, would that make the HELOC a residential mortgage transaction? Thank you for your consideration.

My understanding is the portion of the HELOC used to purchase the dwelling would be a residential mortgage transaction, but the portion that is not used for purchase would require the rescission either before additional draws are made, or on each draw.

Why would you do a HELOC instead of a construction loan? just curious

That's what I was thinking at first. However, if they determine they do not need funds from the HELOC, would the entire line then be subject to RoR? The bank said that the borrower "might" need funds so want to have the HELOC in place just in case.

If they do not use an of the funds for closing, then the entire line is subject to the ROR and 3 day wait.

Peach - usually banks have mortgage insurance requirements for loans above 80%, but different requirements for consumer loans - HIP or HELOCS can go to 90% LTV.

Instead of paying for mortgage insurance, client gets an 80% mortgage loan and 10% with a HELOC.

AV/Cost $200,000
1st REM $160,000 80% - no MI
HELOC $20,000 10% - no MI

Overall $180,000 / $200,000 = 90% LTV with no credit insurance.

The borrower is going to do their permanent takeout of the construction loan with another bank and our bank will have the HELOC. So there is no need for another construction loan.

Official Interpretation

15(f) Exempt Transactions

1. Residential mortgage transaction. Although residential mortgage transactions would seldom be made on bona fide open-end credit plans (under which repeated transactions must be reasonably contemplated), an advance on an open-end plan could be for a downpayment for the purchase of a dwelling that would then secure the remainder of the line. In such a case, only the particular advance for the downpayment would be exempt from the rescission right.

Thank you everyone for your input. This has helpful -- just need to determine how the borrower intends to use the HELOC.

Thank you everyone for your input. This has helpful -- just need to determine document how the borrower intends to use used the HELOC.

Fixed