IBA Compliance Connection

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What should we list as the loan purpose on the Loan Estimate under the TILA-RESPA Integrated Disclosure (TRID) rules for a closed-end loan to purchase a manufactured home that will be attached to land? The borrower already owns the land, and the loan proceeds will be used to purchase a modular manufactured home to be placed on the land, but a portion of the loan also will be used to build a basement, porch and garage for the manufactured home. The loan will be secured by both the manufactured home and the land it will sit on. Is this a purchase loan or a construction loan?

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In our view, the purpose of this loan should be identified as a purchase.

The TRID rules require lenders to identify just one of four possible loan purposes in the Loan Estimate: (1) purchase, (2) refinance, (3) construction, or (4) home equity. We believe that “construction” is inapplicable for two reasons. First, the purpose of construction is used only for the “initial construction” of a dwelling, “not renovations to existing dwellings.” Second, the purpose of construction should be listed only if the loan is not a purchase loan, which is one made to finance the acquisition of the property securing the loan. Thus, we believe that this loan’s purpose should be identified as “purchase,” because it is financing the purchase of property that will secure the loan, and it is not financing the initial construction of a dwelling but merely the additions of a basement, porch and garage.

For resources related to our guidance, please see:

  • Regulation Z, 12 CFR 1026.37(a)(9) (“For each transaction subject to § 1026.19(e), the creditor shall disclose the information in this section: The consumer’s intended use for the credit, labeled ‘Purpose,’ using one of the following terms:

i. Purchase. If the credit is to finance the acquisition of the property identified in paragraph (a)(6) of this section [the property securing the transaction], the creditor shall disclose that the loan is for a ‘Purchase.’

ii. Refinance. If the credit is not for the purpose described in paragraph (a)(9)(i) of this section, and if the credit will be used to refinance an existing obligation, as defined in § 1026.20(a) (but without regard to whether the creditor is the original creditor or a holder or servicer of the original obligation), that is secured by the property identified in paragraph (a)(6) of this section, the creditor shall disclose that the loan is for a ‘Refinance.’

iii. Construction. If the credit is not for one of the purposes described in paragraphs (a)(9)(i) or (ii) of this section and the credit will be used to finance the initial construction of a dwelling on the property identified in paragraph (a)(6) of this section, the creditor shall disclose that the loan is for ‘Construction.’

iv. Home equity loan. If the credit is not for one of the purposes described in paragraphs (a)(9)(i) through (iii) of this section, the creditor shall disclose that the loan is a ‘Home Equity Loan.’)

  • Regulation Z, 12 CFR 1026.2(a)(19) (“Dwelling means a residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.”)
  • Official Interpretations, Regulation Z, 12 CFR 1026, Paragraph 37(a)(9), Comment 1(i) (“The following examples illustrate when each of the permissible purposes should be disclosed: (i) Purchase. The consumer intends to use the proceeds from the transaction to purchase the property that will secure the extension of credit.”)
  • Official Interpretations, Regulation Z, 12 CFR 1026, Paragraph 37(a)(9), Comment 1(iii) (“The following examples illustrate when each of the permissible purposes should be disclosed: . . . (iii) Construction. Section 1026.37(a)(9)(iii) requires the creditor to disclose that the loan is for construction in transactions where the creditor extends credit to finance only the cost of initial construction (construction-only loan), not renovations to existing dwellings . . . .”)