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#2206924 - 02/22/19 09:47 PM Construction Loan with existing mortgage on land
M&M Offline
Platinum Poster
Joined: Nov 2003
Posts: 529
Midwest
We have a borrower with an existing land loan that is less than six months old. They now want to move forward with construction, and we will be paying off the land loan and rolling that into the new construction loan. When we're calculating the LTV for this new loan (using the purchase value), do we use the construction costs + the purchase price of the land or the construction costs + the original loan amount for the land loan or the construction costs + the appraised value of the land?

Is there guidance out there that clarifies what we're required to use when we have a consumer construction loan with an existing loan on the land?

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#2206931 - 02/22/19 10:04 PM Re: Construction Loan with existing mortgage on land M&M
M&M Offline
Platinum Poster
Joined: Nov 2003
Posts: 529
Midwest
Or do we ignore the original land loan and just base our LTV on the new appraisal with the as completed value?

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#2206933 - 02/22/19 10:12 PM Re: Construction Loan with existing mortgage on land M&M
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 47,016
Bloomington, IN
37(a)(7) Sale price.

1. Estimated property value. In transactions where there is no seller, such as in a refinancing, § 1026.37(a)(7)(ii) requires the creditor to disclose the estimated value of the property identified in § 1026.37(a)(6) based on the best information reasonably available to the creditor at the time the disclosure is provided to the consumer, which may include, at the creditor's option, the estimated value of the improvements to be made on the property in transactions involving construction.


38(a)(3)(vii) Sale price.

1. No seller. In transactions where there is no seller, . . . . . . . . For transactions involving construction where there is no seller, the creditor must disclose the value of the property that is used to determine the approval of the credit transaction, including improvements to be made on the property if those improvements are used in determining the approval of the credit transaction.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#2222034 - 09/20/19 08:27 PM Re: Construction Loan with existing mortgage on land M&M
KTMiteComply Offline
Power Poster
KTMiteComply
Joined: Jul 2007
Posts: 3,298
only if I want to....
I have a question about a Construction loan such as this. We are paying off the land, but other debt needs to be paid off as well to qualify.

We want to show all of those debts as "will be paid off" and list on the LE, just like the land loan and have them to bring the additional cash to closing so we can payoff this debt for them to ensure the debt has been paid to qualify.

Can this be disclosed like this on a construction loan? I know it is like a "refinance" but I don't know why I was thinking you couldn't show paying off on the LE?
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Trust in the Lord with ALL your heart...Prov 3:5-6

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#2222055 - 09/21/19 01:40 PM Re: Construction Loan with existing mortgage on land M&M
rlcarey Offline
10K Club
rlcarey
Joined: Jul 2001
Posts: 80,325
Galveston, TX
I can't think of any issues - they would just be additional line items on the payoff and payments table.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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