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?

Or do we ignore the original land loan and just base our LTV on the new appraisal with the as completed value?

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.

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?

I can't think of any issues - they would just be additional line items on the payoff and payments table.