Q: What options are available for disclosing construction loans?
A: When providing Integrated Disclosures for construction loans under the TILA-RESPA Rule, Regulation Z’s long standing construction provisions, § 1026.17(c)(6)(ii) and appendix D to Regulation Z(appendix D), as amended by the TILA-RESPA Rule, apply.
A creditor may use appendix D, which provides methods to estimate interest and disclose the terms of multiple-advance construction loans when the amounts or timing of advances is unknown at consummation.
The creditor may choose whether to disclose a construction-permanent loan as one transaction or as two separate transactions. (§ 1026.17(c)(6)(ii); Comment 17(c)(6)(ii)-2)
If the creditor chooses to disclose the loan as two separate transactions, the construction phase has its own Loan Estimate and Closing Disclosure, while the permanent phase has its own Loan Estimate and Closing Disclosure.
The fact that the creditor chooses to disclose the construction-permanent loan as two separate transactions does not necessarily require two separate closings or two separate promissory notes, loan agreements, or loan contracts. Instead, it means that, for the purposes of the TILA-RESPA Rule, the creditor can consider the loan as two separate phases for purposes of providing the Integrated Disclosures.
Similarly, the TILA-RESPA Rule permits a creditor to disclose a construction-permanent loan as a single transaction even if there are separate closings for the construction phase and permanent phase of the loan.