[Sandy]

We have a TRID loan that a couple are buying the wife’s mother’s house and using their personal residence as additional collateral. The loan is consumer purpose. For the purpose on the LE and CD, would this be Purchase or Home Equity? Is Purchase used if any of the collateral is being purchased or does it have to be their primary residence being purchased?

[Kimberly Boatwright, CAMS, CRCM]

TRID has a very specific Purpose Hierarchy and Waterfall requirement and aides in determining which purpose should be used on the LE. The TRID loan purpose waterfall (hierarchy) is as follows: One, purchase; two, refinance; three, construction; and four, home equity loan. When determining which purpose to disclose, a creditor must look at the waterfall of four possible purposes in the order that they appear in Section 1026.37(a)(9) of Regulation Z and select the first one that applies to the loan.

Each of these in the order that they appear in the rules are as follows:

Purchase Loan Purpose. A purchase is defined as credit to finance the acquisition of the property that secures or will secure the transaction. Since bare land loans are subject to TRID, this means that a purchase loan will often include either a purchase of bare land or the purchase of a dwelling.

Refinance Loan Purpose. A refinance is defined as credit that will be used to refinance an existing obligation that is secured by the property that secures or will secure the transaction. A refinancing is a new transaction requiring new disclosures to the consumer and occurs when an existing obligation that was subject to Regulation Z is satisfied and replaced by a new obligation undertaken by the same consumer.

Construction Loan Purpose. A construction purposes is one where the credit will be used to finance the initial construction of a dwelling (not renovations to an existing dwelling) on a property that secures or will secure the loan. As we will explain when we discuss the TRID Loan Purpose Hierarchy, a construction loan purpose will only be used when an applicant already owns the land they are building on and they are not refinancing that land with the construction loan.

Home Equity Loan Purpose. A home equity loan is a credit that is not a purchase, refinance, or construction loan. These loans are often debt consolidation loans, second mortgages (new money), or other loans where an applicant owns a home free and clear.

Based on why you stated in your question and the TRID waterfall requirements. Your loan appears to be a purchase.

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