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#2073316 - 04/11/16 02:34 PM
Cash Out for Construction
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Posts: 7,351
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Applicant purchased a rental property with his own funds. Then he applied for a loan, secured by the rental property, to pay himself back PLUS extra cash out on the equity which he plans to use for some construction costs of his new residence. FWIW, my bank will not be doing the construction loan.
Is this HMDA reportable?
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#2073334 - 04/11/16 03:28 PM
Re: Cash Out for Construction
swiggles
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Sounds HMDA reportable as a purchase to me, unless your loan is somehow temporary. (Technically, i think your bank IS doing the construction loan, since funds will be used for that purpose. You may not be the ONLY bank making him a construction loan.)
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#2073358 - 04/11/16 04:47 PM
Re: Cash Out for Construction
raitchjay
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Technically, i think your bank IS doing the construction loan, since funds will be used for that purpose I don't see it that way, really. He is getting $250,000 in a lump sum to put in his pocket. He just happened to mention that he may use part of the pocket cash for construction costs. Purchase, maybe. Our loan isn't a construction loan, though.
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#2073372 - 04/11/16 05:14 PM
Re: Cash Out for Construction
swiggles
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Well, your original post didn't say he "may" use it; it said "he plans to use for some construction costs". Your loan may not be a drawn-down LOC, but that doesn't mean funds aren't being used for construction. Just saying. And if funds are being used for construction, how is it not a "construction loan"?
Last edited by raitchjay; 04/11/16 05:17 PM.
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#2073375 - 04/11/16 05:32 PM
Re: Cash Out for Construction
swiggles
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Thanks raitchjay. There is no formal application for this loan. All I have is the officer's "write-up" about it and the write up is real ambiguous......had to ask her exactly what the scenario is, and she is the one who used the word "may."
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#2073401 - 04/11/16 06:03 PM
Re: Cash Out for Construction
swiggles
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What does 'some construction costs'. Is he building a new home or is he remodeling his existing home??
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#2073449 - 04/11/16 07:35 PM
Re: Cash Out for Construction
swiggles
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Building a new home.
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#2073454 - 04/11/16 07:51 PM
Re: Cash Out for Construction
swiggles
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What the loan officer needs to understand is that they need to know what the proceeds are for. Getting that much cash money out is not 'pocket change' to begin with. That just makes no sense.
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My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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#2073459 - 04/11/16 08:01 PM
Re: Cash Out for Construction
swiggles
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Bloomington, IN
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I don't see it that way, really. He is getting $250,000 in a lump sum to put in his pocket.
If the loan is secured by a dwelling, is permanent financing and a portion of the loan proceeds are being used to purchase or construct a new dwelling the loan is reportable. The fact you advanced the proceeds in a lump sum is not a factor in the definition.
PLUS extra cash out on the equity which he plans to use for some construction costs of his new residence
From the GIR:
Paragraph 4(a)(3). 1. Purpose—statement of applicant. An institution may rely on the oral or written statement of an applicant regarding the proposed use of loan proceeds. For example, a lender could use a check-box, or a purpose line, on a loan application to determine whether or not the applicant intends to use loan proceeds for home improvement purposes.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#2073464 - 04/11/16 08:18 PM
Re: Cash Out for Construction
swiggles
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Yes, the officer understood what the proceeds were to be used for. We have several customers who buy properties with their own cash in order to affect a quick closing......then get cash out on the property to reimburse themselves....not odd at all. It's just that the value of this property exceeded what the borrower paid for the property and so he had extra money over and above what he paid for the property. That extra, he is using towards the construction of his new residence, the formal loan for which, is at another bank.
Anyhooooo....will report as a purchase. I appreciate everyone's responses.
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#2075505 - 04/25/16 05:23 PM
Re: Cash Out for Construction
swiggles
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My only question on this is, does this fall under purchase or home improvement? I lean towards home improvement since he technically already owns, and is building, on the property where his residence will be. I also ask for my personal clarification.
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#2075582 - 04/25/16 08:54 PM
Re: Cash Out for Construction
swiggles
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My understanding of the original scenario is that we're talking about 2 different dwellings: a rent home already owned and a primary residence to be constructed. So the cash out is to build the primary residence and you can't improve a dwelling that doesn't exist yet. So... a purchase.
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#2075588 - 04/25/16 09:25 PM
Re: Cash Out for Construction
swiggles
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Fair enough. My impression was that construction had already started (not sure if that matters) with the loan from the other bank, and that HI covers improvements to real property too.
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#2075593 - 04/25/16 09:50 PM
Re: Cash Out for Construction
swiggles
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If a loan is to finish construction to an as yet uncompleted home, it's still a construction (purchase) loan. You can only construct a home once, and until it's completed, even if it takes 8 loans to do it, each one is a construction loan.
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#2075594 - 04/25/16 09:53 PM
Re: Cash Out for Construction
George
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HI covers improvements to real property too. I think (correct me if i'm wrong), that you're looking at this as if he is building his new home on the same real property where the rent home sits, and are therefore looking at the directions about "or improving the real property on which the dwelling sits". Even if that were the case here (and for the record, that's not how i took the OP's scenario; i took it as rent home sits one place, primary residence will be elsewhere), the construction of a home leads you to the purchase designation, which would trump any sort of HI purpose you might try to get to by saying they were "improving" the real property on which the dwelling sits.
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