Build Information

Do I Need Permits to Close on My Construction Loan?

The Short Answer: No, but with a Warning

One of the most common logistical questions I receive is whether the building permits must be fully issued by the city or county before the loan can close. The answer is no—you can typically close on your One-Time Close construction loan before your permits are in hand. This is a significant advantage, as it allows you to secure your financing, lock in your interest rate, and officially purchase your land without waiting on the often-slow municipal bureaucracy.

However, while you can close without permits, you cannot build without them. This distinction is critical because the clock on your construction timeline starts ticking the moment you close your loan.

The Construction Timeline Trap

When you close on a construction loan, you are given a specific "construction period"—usually 12 months for conforming loans, 18 months for jumbo loans, and we recommend 24 months for super jumbo projects. This is the amount of time the lender allows for the home to be completed. If you close your loan but then wait three months for your permits to be approved, you have just "eaten" three months of your construction timeline before a single shovel has hit the ground.

Strategizing Your Closing Date

Because of this timeline pressure, we often strategize with our clients on the best time to close. If your builder expects the permit process to be exceptionally long, it may make sense to wait until the permits are nearly ready before closing the loan. Conversely, if interest rates are rising rapidly, you might choose to close immediately to lock in a lower rate, even if it means losing a few months of construction time.

The Lender's Requirement

While the lender doesn't need the permit to close the loan, they will require proof that the permit has been applied for. They also won't release any "draws" for construction work until the permit is officially issued and provided to the bank. This ensures that no illegal or unpermitted work is being financed on your property.

Conclusion

Navigating the intersection of municipal permits and bank financing requires a careful strategy. By understanding the rules and working with an experienced lender and builder, you can ensure you have the time and the funding you need to complete your project successfully. Contact me today to discuss the best timeline for your custom build.

The Short Answer: No, but with a Warning

One of the most common logistical questions I receive is whether the building permits must be fully issued by the city or county before the loan can close. The answer is no—you can typically close on your One-Time Close construction loan before your permits are in hand. This is a significant advantage, as it allows you to secure your financing, lock in your interest rate, and officially purchase your land without waiting on the often-slow municipal bureaucracy.

However, while you can close without permits, you cannot build without them. This distinction is critical because the clock on your construction timeline starts ticking the moment you close your loan.

The Construction Timeline Trap

When you close on a construction loan, you are given a specific "construction period"—usually 12 months for conforming loans, 18 months for jumbo loans, and we recommend 24 months for super jumbo projects. This is the amount of time the lender allows for the home to be completed. If you close your loan but then wait three months for your permits to be approved, you have just "eaten" three months of your construction timeline before a single shovel has hit the ground.

The Risk of Delays

If your project is not finished within the allotted construction period due to permit delays or other issues, you may face "extension fees" from the lender. These fees can be costly and are an unnecessary drain on your budget. Furthermore, most lenders will not allow the first draw of construction funds to be released until the builder provides a copy of the issued building permit.

Strategic Planning with Your Builder

To mitigate this risk, I always recommend that you and your builder start the permit application process as early as possible—often while the loan is still in underwriting. Ideally, you want the permits to be issued as close to your loan closing date as possible so your builder can break ground immediately.

Conclusion

Closing on your loan without permits can be a great way to expedite your project, but it requires careful coordination with your builder. You must be mindful that any delay in permitting will directly impact your construction window. As your lender, I will work with you and your builder to map out a realistic timeline that accounts for the permitting process in your specific area. Contact me today to discuss your project's timeline.