We are paying off a lot loan for the subject property (secured by that property) and also funding the construction of a new dwelling on that land. What is the correct TRID purpose for this? I believe it would be 'refinance' - due to refinance having a higher hierarchy than construction and some of the funds going to payoff that lot loan. However, I'm a little bothered by first sentence in the 'official interpretation' referring to 'dwelling' in the definition of a refinance:

ii. Refinance. The consumer refinances an existing obligation already secured by the consumer's dwelling to change the rate, term, or other loan features and may or may not receive cash from the transaction.

Furthermore, the interpretation to the definition of 'construction' says:

iii. Construction. Section 1026.37(a)(9)(iii) requires the creditor to disclose that the loan is for construction in transactions where the creditor extends credit to finance only the cost of initial construction.....

As of right now, there is no dwelling. So if we are paying off a real estate secured loan, and financing the initial construction, is it still a refinance if there is no dwelling?

(i) Purchase. If the credit is to finance the acquisition of the property identified in paragraph (a)(6) of this section, the creditor shall disclose that the loan is for a “Purchase.”

(ii) Refinance. If the credit is not for the purpose described in paragraph (a)(9)(i) of this section, and if the credit will be used to refinance an existing obligation, as defined in § 1026.20(a) (but without regard to whether the creditor is the original creditor or a holder or servicer of the original obligation), that is secured by the property identified in paragraph (a)(6) of this section, the creditor shall disclose that the loan is for a “Refinance.”

(iii) Construction. If the credit is not for one of the purposes described in paragraphs (a)(9)(i) or (ii) of this section and the credit will be used to finance the initial construction of a dwelling on the property identified in paragraph (a)(6) of this section, the creditor shall disclose that the loan is for “Construction.”

(iv) Home equity loan. If the credit is not for one of the purposes described in paragraphs (a)(9)(i) through (iii) of this section, the creditor shall disclose that the loan is a “Home Equity Loan.”

This -------ii. Refinance. The consumer refinances an existing obligation already secured by the consumer's dwelling to change the rate, term, or other loan features and may or may not receive cash from the transaction.

is just an example and is NOT the definition of a "refinance". You should report your scenario as a refinance for TRID.

Ok THANK YOU!! I thought that was the answer... but that is also not what my new employer has done historically. I appreciate the back up!

Maybe this cheat sheet will help in the future:

Loan Purpose Summary for TRID


Purchase:

The loan’s purpose is to be reported as “Purchase” on the Loan Estimate and the Closing disclosure if any of the loan proceeds will be used to purchase the real property that will secure the loan.

Construction loans where a portion of the proceeds from the construction loan will be used to purchase the lot will be classified as a Purchase for TRID.


Refinance:

The loan’s purpose is to be reported as a refinance if any of the loan proceeds will be used to refinance an existing obligation to the same borrower secured by the property that will also secure the new loan even if we are not the current creditor.


Construction:

The loan’s purpose is to be reported as construction when the loan proceeds will be used for the initial construction of a dwelling on the property disclosed on the Loan Estimate.

If any of the loan proceeds will be used to purchase the property disclosed on the Loan Estimate the loan’s purpose will be classified as a Purchase for TRID.

If any of the loan proceeds will be used to pay off the property disclosed on the Loan Estimate the loan’s purpose will be classified as a Refinance for TRID.

The permanent financing to pay off a construction only loan, and secured by that property, will be classified as a Refinance for TRID.


Home Equity Loan:

All loan purposes that do not fall within the classification of a Purchase, Refinance or Construction will be classified as a Home Equity Loan for TRID

Fixed:

Refinance:

The loan’s purpose is to be reported as a refinance if any of the loan proceeds will be used to refinance an existing obligation that was subject to Subpart C of Regulation Z to the same borrower secured by the property that will also secure the new loan even if we are not the current creditor.

Thanks so much!