The Texas Constitution allows a lien to be placed on a homestead to secure a recourse loan to the borrower for the purpose of purchasing a homestead and making improvements to the homestead (including constructing a home which will become the borrowers homestead). See Chapter 13 for a discussion of Texas homesteads.
A “home construction loan” refers to a loan for residential construction where the future resident (as opposed to the developer) is the borrower. Residential development loans are covered in Chapter 9.
A “home improvement loan” refers to a loan made to a borrower for the specific purpose of making improvements to the borrower’s existing homestead. It is a recourse loan, meaning that in the event of default the Bank can collect from the borrower in addition to foreclosing on the property. Home construction and home improvement loans are governed by the Texas Constitution and the Texas Property Code.
A home construction loan which will or may be converted to permanent financing by the Bank is subject to RESPA.
The proceeds of a home equity loan can be and often are used to make home improvements, but it is not the kind of loan referred to in Texas banking as a “home improvement loan”.