Its not uncommon that construction loans are arranged while a property rezoning, severance, right of way, or special use permit is being applied for through the appropriate governing body. Its also not uncommon that the related process can take significantly more time that you think it will, delaying the advance of any construction loan funds.
The reason why this is important is because the related property value and lender security may depend on the completion of the property zoning or registration that is required. Without the revised status in place, the property value can be worth significantly less and the construction building permit invalid.
This scenario typically applies to bare land purchases, site development work, or building construction.
For instance, with a bare land purchase of agricultural land, a rezoning to residential or commercial use needs to be approved prior to any building or development taking place. But even at the property buying stage, the a mortgage will only be made available for the value of the property at the time of purchase. If the agricultural land is worth $1,000 an acre and the rezoned property is appraised at $10,000 an acre, the lending value is going to be 1/10 the rezoned value until the process is complete.
Many times property owners and developers will purchase the land with the expectation of rezoning to follow soon after. Construction mortgages can even be arranged subject to the completion of the rezoning or other land title change requirement. But because these processes can become political in nature, multi step in structure, they can also become highly unpredictable. As a result, its important to make sure not to put the horse in front of the cart and progress too far into a construction project until the property classification and use requirements are either in place or close to completion.
Getting too aggressive can not only incur unnecessary delay costs but can also cause the construction mortgage lender to lose patience in waiting for the property requirements to be met, resulting in mortgage funding being lost in some cases, or the rates being revised due to the time that’s gone by.