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Treat Home Improvement as Construct-to-Perm Loan?

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Question: 
May a home improvement loan be treated as a single transaction construction-to-perm loan? If so, is the draw period/construction period exempt from RESPA servicing rules or do they apply because it is not initial construction of the property? Here is the scenario: the borrower already owns a house and is taking it down to the studs and will have all new finishes at the completion of construction. He is also paying off two existing loans. Following the construction phase, the borrower will obtain permanent financing through our bank.
Answer: 

Typically, I say you can only construct a house once. From then on, you're improving it.
However, if a house is being torn down to the foundation, I call it a new construction. There's nothing definitive about this, it just works for me/my logic.

You say they are taking it down to the studs. I'd lean toward calling this home improvement. Yes, it's a major renovation, but the floors and studs are still there.

First published on 04/22/2018

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