You’ve found a piece of land you love. You’re picturing where the house will sit, how the kitchen will open into the great room, and what it will feel like to finally build a home around the way you actually live.
Then the financing conversation starts.
Suddenly, your lender is asking about construction plans for a house that doesn’t exist yet. They want specifications, pricing, land information, and an appraisal for a home that hasn’t been built.
That’s when you realize a construction loan works differently from the mortgage you’d use to buy an existing house.
The good news is that the process makes much more sense once you understand what the lender is evaluating. Below, we’ll walk through the most common construction loan requirements, how the loan works during your build, and what homeowners in Ohio, Indiana, and Kentucky should know before construction begins.
A quick note: Diyanni Homes is a custom home builder, not a lender. Credit requirements, down payments, interest rates, reserves, fees, and underwriting standards vary by lender and loan program. Always confirm financing requirements with your lender.
What Are the Requirements for a Construction Loan?
A construction lender is evaluating two things at the same time: you as the borrower and the home you plan to build.
On the financial side, lenders commonly review your credit history, income, existing debt, available assets, and the funds or equity you’ll contribute to the project. But qualifying financially is only part of the process.
Because the house isn’t standing yet, the lender also needs enough information to evaluate the project itself. That typically means reviewing the property, your construction contract, home plans, specifications, budget, builder information, and the estimated value of the completed home.
At Diyanni Homes, we work with homeowners to bring many of those project pieces together before construction begins.
How Does a Custom Home Construction Loan Work?
Instead of giving the builder the entire loan amount on day one, a construction loan is generally funded in stages known as draws.
Once your plans, pricing, and land information are ready, the lender reviews the project. The loan then moves through underwriting, where your financial qualifications are evaluated. An appraisal is completed using the proposed home plans, specifications, and property to determine what the finished home is expected to be worth.
After the loan closes and required permits are secured, construction can begin.
As work progresses, the lender releases additional funds at predetermined stages after verifying that the corresponding work has been completed. Diyanni’s owner guidance notes that its projects commonly involve five to six draws and that the construction-loan process itself often takes around 45 days, give or take.
During construction, many borrowers make interest-only payments based on the amount that has actually been drawn rather than the entire approved loan amount. The Consumer Financial Protection Bureau explains that construction-only loans commonly involve multiple disbursements with interest paid during construction. When the house is finished, the construction financing either converts into permanent mortgage financing or is paid off by a separate permanent mortgage, depending on the loan structure.
Construction-Only vs. Construction-to-Permanent Loans
One question worth asking your lender early is what happens to the loan after your home is complete.
A construction-only loan finances the building phase. Once construction ends, you generally need permanent mortgage financing to pay off that loan.
A construction-to-permanent loan combines the construction financing and eventual mortgage into a connected transaction. Fannie Mae recognizes both single-closing and two-closing construction-to-permanent structures.
With a single-closing product, the construction and permanent financing are generally arranged together. A two-closing structure uses an initial construction loan followed by another closing for the permanent mortgage.
Neither option is automatically better. Ask about closing costs, rate-lock terms, construction-period interest, qualification requirements, and what happens if your project changes during construction.
Diyanni Homes can also connect you with preferred construction lenders who already understand the timelines and documentation involved in custom home building.
What Documents Do You Need for a Construction Loan?
Your lender will provide the definitive checklist, but a custom construction loan commonly requires much more project documentation than financing an existing home.
The lender may request your signed construction contract and detailed home plans. Specifications help show what materials and features are included, while the project budget gives the lender a clearer picture of how the loan proceeds will be used.
Information about the property also matters. That can include the deed or purchase agreement, survey information, title work, and details about site improvements.
This is one reason we separate a custom home budget into the home itself, the land improvements, and the land. Your lender needs to understand the full project, not just the price of the house.
If you’re still evaluating a property, our guide to buying land for a custom home explains what to investigate before you commit.
Can You Use Your Land as Equity?
Often, yes. If you already own your homesite, the lender may recognize some of the equity in that property as part of your contribution toward the project.
For example, if land appraises at $100,000 and you still owe $20,000, you may have approximately $80,000 in equity. How much of that equity the lender allows you to use depends on the appraisal, existing liens, loan structure, and your overall financial qualifications.
That means owning land could reduce the amount of cash you need to bring into the construction loan, but it doesn’t automatically eliminate the down-payment requirement.
Construction Loan Requirements in Ohio
If you’re planning to build a custom home in Ohio, the financial qualification standards for your loan will come primarily from the lender. The property itself, however, also needs to move through the appropriate local approval process before construction.
Ohio has a statewide residential building code, while certified municipal, township, and county building departments can approve plans and perform inspections within their jurisdictions. You can review the framework through the Ohio Board of Building Standards provisions. That means the exact documents your lender needs before releasing construction funds can depend on where your property is located.
A rural Ohio homesite may also require an approved septic system. Ohio law gives local boards of health authority to approve or deny sewage-treatment-system installations based on whether the proposed system is appropriate for the site. For the homeowner, the takeaway is simple: your financing and your land planning need to happen together.
A lender could be comfortable with your financial profile while the property still needs zoning review, septic approval, driveway planning, or utility coordination before construction can begin. If you’re building around Central Ohio, our Columbus Area Zoning Checklist is a helpful place to start.
Construction Loan Requirements in Indiana
Indiana borrowers will generally go through the same core financial underwriting process: credit, income, assets, debt, property information, plans, specifications, and project appraisal. The difference comes in the local approvals attached to your property.
Indiana notes that even construction work exempt from state plan filing can still require local permits. For a custom single-family home, you’ll want to identify the city, town, or county that has jurisdiction over your site and determine which local building and zoning approvals are necessary.
Septic is especially relevant for rural properties. The Indiana Department of Health’s Onsite Sewage Systems Program states that local health departments issue permits for new residential onsite sewage systems.
If you’re building on acreage outside Indianapolis or Fort Wayne, that could mean evaluating soil conditions and septic feasibility before the lender has a complete picture of the site-development budget.
Electric service, water source, driveway access, and grading can also affect the amount that ultimately needs to be financed. Diyanni Homes builds throughout Ohio, Kentucky, and central Indiana, and our land evaluation process is designed to identify these property-specific considerations early.
Construction Loan Requirements in Kentucky
Kentucky has its own layer of local considerations. The state maintains a mandatory residential building code for one- and two-family dwellings, but Kentucky’s current residential-code regulation states that permits, inspections, and certificates of occupancy for a single-family dwelling are only required when a local ordinance requires them.
That makes your municipality especially important when determining the approvals needed before construction. You can review the current rule through the Kentucky Legislative Research Commission. Rural Kentucky properties may also require onsite sewage approval. State regulations require a site evaluation and permit before construction of an onsite sewage-disposal system begins.
For someone building around Louisville or elsewhere in Diyanni’s Kentucky service area, the best first move is identifying the authority responsible for the property and understanding what the land needs before final loan numbers are locked in.
A beautiful Kentucky property with a long driveway, extensive grading, or a septic system could have a very different site budget than a lot with public utilities already available. That difference matters to your lender because land improvements are part of the overall financial picture.
The Appraisal Works Differently for a Custom Home
You can’t appraise an unfinished custom home the same way you’d inspect a house that already exists.
Instead, the appraiser reviews the proposed plans, specifications, property, and construction information to estimate the home’s value once it is complete.
That projected completed value is an important part of underwriting because the lender needs to understand the collateral it will ultimately have.
This is also why major design changes after loan approval matter. Adding a larger garage or completely changing the floor plan doesn’t only affect construction. A significant change can affect the contract price, engineering, appraisal, financing, or cash you need to contribute.
The earlier those decisions are made, the easier it is to keep the home design and financing working from the same plan.
When Should You Talk to a Construction Lender?
Earlier than you probably expect. You don’t need every cabinet color chosen before having an initial financing conversation. In fact, talking with a construction lender early can help establish the overall investment you’re comfortable making before you purchase the wrong property or design a home beyond that range.
At Diyanni, we also encourage homeowners to think about the full budget before making major commitments.
If you already own land, we can evaluate the property and begin connecting it to the home you want to build. If you’re still searching, bringing the builder and lender into the conversation before closing on land gives you more information while you still have options.
You can learn more about how the pieces come together in our custom home building process and our 2026 custom home cost guide.
Build the Home and the Financial Plan Together
Financing shouldn’t feel like a separate mystery happening somewhere outside your custom home project. Your land affects the budget. Your plans influence the appraisal. Your construction contract helps the lender understand the investment, and the financing needs to be ready before excavation begins.
At Diyanni Homes, we help you bring those pieces together so you know what comes next. If you’re planning to build in Ohio, Indiana, or Kentucky, schedule a consultation with DiYanni Homes and start connecting your property, home plans, and financing into one clear path forward.
Construction Loan Requirements: Frequently Asked Questions
What credit score do you need for a construction loan?
There is no single credit-score requirement that applies to every construction loan. Standards depend on the lender and loan program, along with your full financial profile. Ask prospective lenders about their current minimums before planning around a specific number.
How much do you need down for a construction loan?
Down-payment requirements vary by lender and loan structure. The lender may consider the project cost, completed appraised value, available assets, and any equity you already have in the land.
Do you need to own land before getting a construction loan?
Not always. Some construction-loan products can finance the property purchase along with construction. Other borrowers already own land and use their existing equity as part of the project.
Do construction loans include land improvements?
They can, depending on the lender and approved budget. Driveways, utilities, septic systems, wells, grading, drainage, and other site work may be part of the financed project when properly documented and approved.
Does the lender need to approve the builder?
Many construction lenders review the builder because the lender will be releasing funds throughout the project. Requirements vary, but the bank may request builder documentation and information about the construction contract before final approval.
How long does construction loan approval take?
Diyanni’s draw schedule notes that its projects involve six draws and that the construction-loan process itself often takes around 45 days, give or take. Your actual timeline depends on the lender, appraisal, underwriting, and how complete the documentation is.