We have a borrower that wants to use a HELOC on their primary residence to purchase a 2nd home. I know we'll have to require ROR to be signed, but does the initial draw to purchase the 2nd home qualify under the residential purchase ROR exemption?

Hi TMatt!

I pulled this from regulation Z. From what I read it states that the line has to be secured by the property being purchased. I believe the loan you are questioning would not have this exemption.

f) Exempt transactions. The right to rescind does not apply to the following:

(1) A residential mortgage transaction.

(2) A credit plan in which a state agency is a creditor.

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.

Thanks for the quick response.

RofR will always be required in that scenario. While a residential mortgage transaction is exempt, a residential mortgage transaction only involves a security interest that is created or retained in the consumer's principal dwelling to finance the acquisition or initial construction of that dwelling. It has nothing to do with purchasing a 2nd home.