SAFE MLO RESPA & Regulation X question: 12-month loan to finance construction of a house

SAFE MLORESPA & Regulation X

A borrower takes a 12-month loan to finance construction of a house; a separate permanent loan from another lender will pay it off. Under Regulation X, how is the construction loan treated?

A As covered by RESPA only if the borrower will occupy the home
B As covered by RESPA because it is secured by real estate
C As a federally related mortgage loan, because a house is being built
D As temporary financing exempt from RESPA

Show the answer and explanation

Answer: D. As temporary financing exempt from RESPA

Temporary financing, such as a construction loan, is exempt from Regulation X unless it is used as or may be converted to permanent financing, or has a term of two years or more (12 CFR 1024.5(b)(3)). A 12-month construction-only loan paid off by a different lender's permanent loan is exempt. The permanent loan itself is covered. Source: 12 CFR 1024.5(b)(3) (as at 11 Oct 2026).

Common mistake

Thinking every loan secured by a home under construction is covered.

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Original study material mapped to the public NMLS Content Outline; not a real test question.Not affiliated with or endorsed by NMLS, CSBS or SRR. Verify figures and rules against current guidance before relying on them.