TRID & Construction Loans

When it comes to TRID, disclosing the “loan product” for a construction loan isn’t always as clear-cut as it seems.  Let’s take a construction to perm (all-in-one) loan with one closing.  Say the rate for the construction phase is going to be fixed at 4%.  You know that the permanent phase will also have a fixed rate but you don’t yet know what it will be at this point.  Logic would lead you to believe that the loan product should be disclosed as a fixed-rate transaction but the TRID rules aren’t always logical.

Click on the video to listen to Jerod explain more.

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Transcript Below

Let’s talk a little shop about TRID and construction loans. Hi there, this is Jerod Moyer with Banker’s Compliance Consulting. Specifically today, what I want to get into is the loan product description as it relates to a construction to perm all in one with a single closing. Now I’m going to give you some specifics about this product that we’re going to discuss. Let’s take, for example, that you’re going to do the construction phase. Let’s just say your rate’s going to be 4% fixed. You also know that the permanent phase is going to have a fixed rate, but it’s going to be a different fixed rate than your construction phase. So both phases are fixed rates. It’s just that you don’t know yet what that permanent phase fixed rate’s going to be. Now logic tell you that this product description should be a fixed rate transaction. However, the TRID rules have some interesting requirements as to how you’re supposed to go about this business.

Even though both phases are going to be fixed, you know what the construction phase is going to be fixed at but because there’s going to be a transition from this fixed rate to that fixed rate, the one that’s not yet known for the permanent phase, that transaction is actually deemed to be, from a TRID standpoint, an adjustable rate transaction. You’ll have to count account for that within the product description and the loan term section within your TRID disclosure. So don’t get tripped up by the fact that it’s fixed, followed by fixed, and the system trying to disclose it as adjustable because it actually has to be done that way.

This is one of the many TRID training elements that we dive into within our training library. Invite you and your team to check out our different training options or, better yet, give us a call. We’d love to figure out how we can partner with you to meet your training needs as it relates to TRID and compliance, or any other compliance requirement for that matter.

Published
2020/07/21

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