For the Loan Estimate, would we choose "Purchase" for the following scenario? Or "Equity"?

An applicant has requested a 12-month bridge loan to be secured by his current residence. The purpose is for a down payment on a home that he plans to buy in the future - he has not yet identified that home. But wants to fund this loan into his checking account so as to be ready to jump when he finds a property. Since the proceeds are not immediately being used for a purchase, should this be Equity?

Your purpose always ties to the property you are taking a security interest in......so, "equity".

Thank you!

Let's add another layer......loan to purchase principal residence.....collateral will be rental property currently owned and principal residence being purchased from loan proceeds.......Purchase or Equity???

Shouldn't the loan purpose list the actual purpose? It is not like HMDA where you report what the funds will be used for. Am I missing something here?

I asking about the "TRID" purpose which never seems very straight forward to me.......

......loan to purchase principal residence.....collateral will be rental property currently owned and principal residence being purchased from loan proceeds.......Purchase or Equity???

Purchase because the property being purchased is also securing the loan. If it was not then it would be a home equity.

Shouldn't the loan purpose list the actual purpose?

For TRID the purpose is based on the property securing the loan.

From 1026.37(a)

(6) Property. The address including the zip code of the property that secures or will secure the transaction, or if the address is unavailable, the location of such property including a zip code, labeled “Property.”

(9) Purpose. The consumer's intended use for the credit, labeled “Purpose,” using one of the following terms:

(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.”

Thanks Dan......

Here's a summary I gave our loan people.

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.

Great summary, Dan.

A caveat to that summary that I run into [a bit too often] is the 'refinance' that does not fully meet the definition because the loan being paid off was not a loan subject to .20 (a). We have this on loans going from commercial to consumer purpose and owner-financed to bank financed quite often. We code those as HEs.

(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)

.20 (a) Refinancings. A refinancing occurs when an existing obligation that was subject to this subpart is satisfied and replaced by a new obligation undertaken by the same consumer.

Amazing I thought I had Purpose locked down before this thread.

So I have an application for a loan in which there is currently no lien. The purpose of the funds will be used to purchase another property, lets say second home so it is a consumer purpose. Now I have the other application for the purchase of that property. Are you telling me that the LE needs to list both loans as purchase loans when sending out the LE? I know for HMDA that is the case but TRID also?

Also, are your systems set up in a way that you can list a loan as a purchase without it being an actual purchase. We just went through a conversion so I do not know how the new system works, but I know this was an issue with our old system when reporting HMDA. Those loans we had to manually update prior to submission. I am actually doing a review now so your thoughts would be much appreciated.

If the lien is on their current residence (not the one they are purchasing), this would not be a purchase for TRID but a HE.

OK, that is what I thought. Maybe I misread Dan's response because I thought he said he initial example should be coded as a purchase. It is the lien that is on the property that matters. That is my understanding. Thanks for clarifying.

The purpose of the funds will be used to purchase another property, lets say second home so it is a consumer purpose.

Assuming the property being purchased does not also secure the loan then as Adam stated this would be a Home Equity for TRID purposes. If both properties, the unencumbered property and the property being purchased, will secure the loan then it would be a purchase for TRID.

Now I have the other application for the purchase of that property. Are you telling me that the LE needs to list both loans as purchase loans when sending out the LE?

I'm not sure I understand this statement. But if this loan is to purchase a property that is to be secured by that property it would be a Purchase for TRID.

TRID's purpose is based on the disposition of the property or properties disclosed under (a)(6). Purchase, refinance, construction, or Home Equity.

Agreed.

I was confused by this as well, but Dan's point is right on.

Sorry. In my example I had 2 different applications. One to received cash out for the purchase and another for the actual purchase. 2 separate loans. Under HMDA they are both purchases and I originally thought that it was said that both would be considered purchases under TRID also.

I do think we are all on the same page. Sorry again for the confusion.

So you are doing a 1st lien for the purchase followed by a second lien for cash out purposes? Sounds like a purchase and then a home equity loan for TRID purposes. You can't do the second loan until the first loan is closed, then they already own the property.

Correct, collect the $$ from the "home equity" and use it for the purchase. Funds would need to be available. for the purchase. Thanks again. I have it straight in my head again.

Then they are both purchase loans. You are talking about a simultaneous second. This is not a "cash-out" loan.

No not a second. The cash proceeds from the first loan were used to cover the costs and remaining balance of the purchase required. 1st lien on Prop A and Prop B. Separate.

Let's get this straight. Was the junior lien loan signed and closed at the same time as the first lien loan? Or was it closed at a later date?

And are they secured by the same property(ies)?

John, If you are asking about my example the answer is no. Two loans. Two properties. 1st loan there was no lien, 100% cash finance so the LE/CD loan purpose is Home Equity. 2nd loan was a true purchase. Funds from the 1st were used to close on the 2nd. No subordinate financing. Only thing in common is that they are to the same borrower.

Just to add:



this is a fairly common occurrence. My TRID purposes and HMDA purposes often do not match.