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#2071349 - 03/29/16 03:38 PM
Home Improvement or Purchase
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We are refinancing a construction loan that was secured by a 401k. We are also adding $60k new money to finish the home (cabinets and trim and what not).
Would this be considered a home purchase since it hasn't been reported or a home improvement?
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#2071354 - 03/29/16 03:47 PM
Re: Home Improvement or Purchase
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Well, unless you have added a home as collateral, it wouldn't be reportable at all. You can't 'improve' a home that is still being constructed, so even if you report non-dwelling secured HI loans, this one doesn't qualify. So the only way this one is reportable would be as a purchase, and that's only if you've added a dwelling as collateral.
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#2071355 - 03/29/16 03:51 PM
Re: Home Improvement or Purchase
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Sorry, I forgot to add that the home is now collateral.
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#2071357 - 03/29/16 03:55 PM
Re: Home Improvement or Purchase
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Kind of an odd scenario, but i would report as a purchase. I understand that this loan wouldn't meet the HMDA definition of a refinance since the first loan isn't dwelling-secured, but the GIR says "a home purchase loan includes...the permanent financing that replaces a construction-only loan". It doesn't (to my knowledge) say that the construction only loan had to have a dwelling securing it; only that the end loan must be secured by a dwelling.
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#2071364 - 03/29/16 04:21 PM
Re: Home Improvement or Purchase
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Converting a non-dwelling secured "construction" loan to permanent financing would not be reportable. The loan would simply be a equity loan to pay off an unsecured loan. No different than paying off credit cards that were used to construct or improve the dwelling.
In this scenario the loan is to payoff an unsecured loan but also a portion of the loan will be used to construct, or finish constructing a dwelling and it is also the permanent financing which makes it a construction/permanent loan. Construction/permanent loans are reportable as a purchase.
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#2071377 - 03/29/16 05:12 PM
Re: Home Improvement or Purchase
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Dan, while i don't disagree with the logic in your first paragraph (yes, you can look at the loan as being a home equity loan) is the loan in the OP's scenario (and for the sake of argument on this point, let's say there were no new funds to complete construction) not still "the permanent financing that replaces a construction only loan"? And as far as i can see in the GIR and Reg. C, the requirements for a "home purchase loan" include being secured by a dwelling, i don't see anything that says a construction only loan MUST be secured by a dwelling before the perm financing that replaces it is reportable; what i see is that a "home purchase" loan must be dwelling-secured, and that "a home purchase loan includes...the permanent financing that replaces a construction-only loan". The 1st loan was construction only. The 2nd loan is the permanent financing that replaces it AND is secured by a dwelling.
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#2071391 - 03/29/16 05:31 PM
Re: Home Improvement or Purchase
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Maybe i'm misinterpreting (Dan, feel free of course to correct my interpretation of what you are saying).... i take Dan to be saying the only way this scenario is reportable is IF there are additional funds to complete construction. I'm saying that additional funds to complete construction or no additional funds, the loan is reportable because it meets the definition of a home purchase loan.
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#2071396 - 03/29/16 05:36 PM
Re: Home Improvement or Purchase
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If the 401K "construction" loan was also the permanent financing then that would make it a construction/permanent loan - would you report it? The GIR says to report construction/perm loans.
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#2071399 - 03/29/16 05:40 PM
Re: Home Improvement or Purchase
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TR, ratichjay and I aren't agreeing on this particular issue.
I'm contending that converting a non-dwelling secured "construction" loan to permanent financing would not be reportable. What makes the above loan reportable, IMO, is the fact additional money is being advanced for construction of the dwelling. If this additional money was not being advance then I would opine the loan would not be reportable.
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#2071400 - 03/29/16 05:40 PM
Re: Home Improvement or Purchase
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No, i wouldn't report it, because it wouldn't be secured by a dwelling. The GIR says to report construction/perm loans OR the permanent financing that replaces a construction only. It defines a "purchase" as "a loan that is both secured by and made for the purpose of purchasing a dwelling". It says that "a home purchase loan includes....the permanent financing that replaces a construction-only loan". When i put those two things together, i see a perm loan that is replacing a construction only loan, and it is dwelling-secured.
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#2071406 - 03/29/16 05:58 PM
Re: Home Improvement or Purchase
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How is an unsecured loan classified as a construction loan? It doesn't meet the definition of a RMT under Reg. Z, it wouldn't be reported on the Call Report as a construction loan, etc.
A consumer purpose unsecured loan to construct a dwelling, buy a car, buy a boat, etc. are personal loans. They are not a dwelling, car or boat loans.
How is this different from Mr Smith coming to Bank B to do the permanent financing of his construction loan at Bank A?
Because the construction loan at Bank A is going to be dwelling secured.
If I apply for $150,000 equity loan on my newly constructed home and tell you the $150,000 is to pay off the credit card I used to construct the dwelling would you report it? If not what is the difference? Both the 401K loan and the credit card loan were used for construction and you are converting them to permanent financing.
We are going have to agree to disagree on this issue but like you TR I stand by my opinion that a dwelling secured loan to refinance a non-dwelling secured "construction" loan is not reportable as purchase.
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#2071409 - 03/29/16 06:02 PM
Re: Home Improvement or Purchase
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If apply for $150,000 equity loan on my newly constructed home and tell you the $150,000 is to pay off the credit card I used to construct the dwelling would you report it? If not what the difference. Both the 401K loan and the credit card loan were used for construction and you are converting them to permanent financing.
The difference to me is that you (i'm assuming from your post) didn't come to me for the construction loan; you simply constructed the home (with your own funds i suppose). If you had come to me for your construction loan and secured it with a CD, and now you come to me to perm out that construction loan, but change the collateral from the CD to the home, IMO it meets the definition of a purchase. Unfortunately, Reg. C and the GIR didn't define "construction" loans for us that i can tell. The define "construction/permanent" and "the permanent financing that replaces a construction only loan", but not what is and is not a "construction" loan.
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#2071410 - 03/29/16 06:03 PM
Re: Home Improvement or Purchase
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I agree....good discussion. I certainly respect your point of view Dan.
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#2071411 - 03/29/16 06:04 PM
Re: Home Improvement or Purchase
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So you all are saying that if I lend my son money to construct a new home and he then borrows the money to repay me once the construction is done you are going to classify that as a home purchase loan?
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#2071414 - 03/29/16 06:08 PM
Re: Home Improvement or Purchase
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No, because there was no construction only loan being replaced (unless by you lending money to your son, you mean you in your role as a loan officer).
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#2071415 - 03/29/16 06:10 PM
Re: Home Improvement or Purchase
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The key part in all this to me is "the permanent financing that replaces a construction only loan" (that along with the definition that a home purchase loan has to be secured by a dwelling). If you come to my bank for a loan to build your home and come back to my bank for the perm financing that replaces that loan, so long as the perm loan is dwelling-secured, i see no way not to report it.
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#2071416 - 03/29/16 06:10 PM
Re: Home Improvement or Purchase
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How is my personal loan to my son to construct his home not a construction loan if the 401K loan to construct a home is?
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#2071419 - 03/29/16 06:12 PM
Re: Home Improvement or Purchase
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Okay...so we are honing in on:
1) John Doe borrowers money, unsecured or whatever, to build his home. But the purpose of the loan is home construction, inspections and all.
2) John amortizes it at completion with a permanent loan secured by his new home (heck why not leave it unsecured! ;-) )
I don't know of any 'rule' that states a construction loan HAS to be secured by the dwelling in order for the permanent loan to be a reportable purchase. IT would seem 'purpose' would rule here...and if so, it would be a reportable as a purchase.
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#2071421 - 03/29/16 06:13 PM
Re: Home Improvement or Purchase
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Because individuals don't have responsibilities to report HMDA loans would be my answer to that.
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#2071422 - 03/29/16 06:14 PM
Re: Home Improvement or Purchase
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Just because it's not a bank loan doesn't mean it's not a loan. Dan "loaned" money to his son in anticipation of repayment from the perm. My dad used to loan me money and I had to sign a promissory note. It was a loan, but my Dad wasn't an official loan officer.
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#2071423 - 03/29/16 06:14 PM
Re: Home Improvement or Purchase
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I mean....i don't think any part of Reg. C or the GIR, when it references "loans", is talking about anything but loans made by banks or other financial institutions, because it is financial institutions that have HMDA reporting responsibilities.
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