Would it be considered a home purchase if a customer is taking cash out of an existing rental property to have liquidity in case another real estate investment opportunity appears? The future real estate investment may be another dwelling, or it may not. My thoughts are not since the direct purpose is just to replenish liquidity.

I have a similar situation, so will be interested in the answer to the above question.

The answers I have seen to similar questions, is that the borrower could state the cash out is for future investments, but with no definitive purchase in sight, there is no guarantee that the funds will actually be used for the stated purpose. The funds may just sit as borrower liquidity, or may be used for a completely different purpose. If the borrower refinanced an existing loan to increase the outstanding for the cash out, you'd have a refi, otherwise, you have an "other" purpose.

Don't simply go with the "other" category without due diligence to determine what those future investments are.

At this point the borrower doesn't know they just want the cash available for any real estate investment that comes up.

I'm seeing more of these situations being posted.

The regulation allows the FI to rely on the statement of the applicant/borrower for the loan's purpose. In these cases the loan officers are going to have to do what The OG is suggesting and do a better job in documenting the applicant/borrower's intent.

If you cannot determine if the "investment" properties are going to be dwellings (defined in 1003.2(f)) then the FI is going to have to make a business decision if they are going to consider these covered loans and document the basis for their decision.

otherwise, you have an "other" purpose.

Keep in mind this option is not available for business/commercial purpose loans.

If we treat these as other and they are for business purposes I assume they will not be reportable correct?

Correct.