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Does The LE Need to Include Borrower Paid Construction Costs?

Question: The bank would is requiring the customer to come in with equity at closing of a construction loan. If we have this information at the beginning of the process when preparing the Loan Estimate, do we need to put this information on the LE? 

Answer: Yes. Like a purchase money transaction with disclosures that balance back to the purchase price of the home, disclosures related to a construction loan need to balance back to the total construction contract amount.

When preparing the disclosures, the lender would enter the total construction contract amount into the Payoffs and Payments table. If the borrower is to bring additional cash to the table (to give to the lender to detain) at closing to fulfill the total contract amount, that will be reflected as necessary cash from borrower in the Cash to Close table. If the borrower previously paid an amount directly to the contractor, the lender would show that as a separate credit from the borrower in the Payoffs and Payments table.

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Official interpretation of 37(h)(2)(iii) Payoffs and payments.

  1. Examples. Examples of the amounts incorporated in the total amount disclosed under § 1026.37(h)(2)(iii) include, but are not limited to: Payoffs of existing liens secured by the property identified under § 1026.37(a)(6) such as existing mortgages, deeds of trust, judgments that have attached to the real property, mechanics' and materialmen's liens, and local, State and Federal tax liens; payments of unsecured outstanding debts of the consumer; construction costs associated with the transaction that the consumer will be obligated to pay in any transaction in which the creditor is otherwise permitted to use the alternative calculating cash to close table; and payments to other third parties for outstanding debts of the consumer, excluding settlement services, as required to be paid as a condition for the extension of credit. Amounts that will be paid with funds provided by the consumer, including partial payments, such as a portion of construction costs, or amounts that will be paid by third parties and will be disclosed on the Closing Disclosure under § 1026.38(t)(5)(vii)(B), are calculated as credits, using positive numbers, in the total amount disclosed under § 1026.37(h)(2)(iii).

 

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