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#2257482 - 07/30/21 09:40 PM Loan Purpose of Large Scale Home Improvement Const
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Joined: Oct 2012
Posts: 143
San Antonio, TX
Every once in a while, we have a large scale home improvement to a borrower's dwelling go through a construction loan process. When disbursements are finished, it goes from a construction product type and call code to a permanent product type and call code. Pre-2018 we would report the Loan Purpose as Home Improvement (2), even when it involved paying off another lien (old pecking order). Now, if paying off another lien is involved, would be report the loan purpose as a refinance due to the new pecking order? If so, do we report it as a Limited Cashout Refi (31), or do we report it as a Cashout Refi (32)? Thanks!

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#2257485 - 08/01/21 12:11 PM Re: Loan Purpose of Large Scale Home Improvement Const Help! Compliance
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
I would think that you would treat it like this. The permanent loan, when there is a 2x close construction/permanent loan, is still a purchase loan or reporting, even if the permanent loan is technically refinancing the construction loan.

3. Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan or line of credit, and the separate permanent financing that replaces a construction-only loan or line of credit for the same borrower at a later time.

It would be a cash out refinance in the secondary market, as the original loan funds were not used to purchase the property, but that is only if you price or underwriting your Limited Cash Out and Cash-Out Refinances differently. Since this is a home improvement loan, neither would apply.
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#2257489 - 08/02/21 01:49 PM Re: Loan Purpose of Large Scale Home Improvement Const rlcarey
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San Antonio, TX
So could you elaborate a bit on what you meant when you said, "neither would apply," at the end? Do you agree with the new pecking order that if this large scale home improvement going through a construction process (similar to 1x close) involves paying off an existing lien, the Loan Purpose should be reported as a refinance? If so, do you believe a limited cash-out refi (31) to be more appropriate than a cash-out (32)?

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#2257492 - 08/02/21 02:08 PM Re: Loan Purpose of Large Scale Home Improvement Const Help! Compliance
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
Well, have you changed the story? Is there or is there not an existing lien that is also going to be refinanced along with the new money for home improvement. There was no mention of that in the first post and now it appears that there is?

As far as limited cash-out versus cash-out refinance, if this is a secondary market loan, if the refinance involves home improvement funds, it would be a cash out refinance.

If this is a portfolio loan, I know few banks that differentiate.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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