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We have a construction loan that is being amortized out. The first loan will be made in accordance to our loan policy. The second loan will be made unsecured with a balloon and a mortgage in abundance of caution. The co-signer qualifies for the unsecured portion. Our policy states that unsecured loans will not exceed 36 months. Is a 3 year balloon ok for this type of loan or are we bound by the 7 year balloon rules because we are taking a mortgage (in abundance of caution)?
A consumer loan secured by a dwelling is subject to the ability to repay rules in 1026.43. There isn’t an exception for taking collateral out of an abundance of caution. If you are trying to meet the ATR requirements you will have to consider the balloon payment if the term is less than 5 years after the first payment (61-62 months); for a QM it must be between 5 and 30 years. You can find these rules in 1026.43.
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