Customer originated a lot loan, then constructed a dwelling using their own funds. Now the customer is refinancing the lot loan and taking cash out to finish landscaping on the new home.

Would I report as a cash out refinance because the lot loan became dwelling secured when the customer built the home on it, or should I report as home improvement, because the loan being paid off wasn't dwelling secured at the time of its origination?

I think it's a home improvement loan for 2 reasons:
1. Your first loan was not dwelling secured, so the 2nd loan doesn't meet the definition of "refinance."
2. The proceeds are use to improve the property.

1. Your first loan was not dwelling secured, so the 2nd loan doesn't meet the definition of "refinance."


I would question this David. Unless the dwelling that was built was specifically carved out of the mortgage the mortgage is going to cover all existing and future improvements to the property. IMO that would make the current loan dwelling secured.

I agree with Dan that this seems like a refinance since the first loan now appears to be a "dwelling-secured debt obligation by the same borrower."

" (p) Refinancing means a closed-end mortgage loan or an open-end line of credit in which a new, dwelling-secured debt obligation satisfies and replaces an existing, dwelling-secured debt obligation by the same borrower."

Good point. I stand corrected. Thanks guys.

Thanks all.