Permits and Your Construction Loan: What Needs to Be in Hand Before Draws Start

Before construction money flows, most lenders want proof the city or county has approved the work. At a minimum that usually means an issued building permit, and often site, grading or utility approvals as well. If permits are still in review at closing, many lenders will close but hold construction draws until the permits are issued.

Why permits matter to a lender

An unpermitted build can be stopped by the city, fined or even ordered torn out. That puts the lender's collateral at risk. An issued permit tells the lender the plans have passed review, the use fits the zoning and work can legally begin.

Zoning and land-use approvals for what you plan to build, often called entitlements, come before any of this. RSC Private Lending's New Construction program requires entitled land with a survey.

The usual list

Exact requirements vary by jurisdiction and project, but common approvals include:

• Building permit: the core approval for the structure, based on your plans.
• Site or grading permit: for clearing, earthwork and drainage.
• Utility approvals: water and sewer taps, septic permits or power service.
• Driveway or right-of-way permit: if you are cutting a new curb or working in the street.
• Trade permits: electrical, plumbing and mechanical, often pulled by the subcontractors.
• Zoning or HOA approvals: where the design needs a sign-off.

Ask your builder and the local permit office for the full list early.

When permits are still pending

Lenders handle this a few ways. Some will not close until permits are issued. Others close, fund the land purchase, and make the building permit a condition before the first construction draw. A few may advance soft costs, like plans and fees, before permits arrive. Ask your lender which approach applies before you set a closing date.

Example

Example (illustrative numbers only): An investor's lot purchase must close by month's end, but the building permit is still in review. The lender closes and funds the land, while holding the $380,000 construction budget. The permit is issued five weeks later, and the first draw goes out right after. The investor pays interest only on the land portion while waiting, roughly $700 a month on a $75,000 balance at 11%.

What this means for you

Submit plans for permits as early as you can, ideally before or right after you go under contract on the land. Track every approval and its expected date, and share that list with your lender. Permit timing is often outside your control, so give it the most lead time of anything in your schedule.

Lining up permits for a new build? Send RSC Private Lending your scenario for a term sheet in 24 hours. All loans are business-purpose and subject to underwriting.