How Construction Loans Work in Kentucky

How Construction Loans Work in Kentucky

Thinking of building your dream home instead of buying existing? A construction loan could be the right solution. These loans are specifically designed to finance the costs of building a new home from the ground up, and they work differently than a standard mortgage.

At Quality Home Mortgage in Cadiz, KY, we specialize in helping Kentucky families understand their financing options for new home builds. Here’s what you need to know about how construction loans work in Kentucky.

What Is a Construction Loan?

A construction loan is a short-term loan used to cover the costs of building a home. Instead of receiving a lump sum, the funds are distributed in draws as construction progresses.

Once construction is complete, you typically transition into a permanent mortgage, either by refinancing or through a construction-to-permanent loan that converts automatically.

Types of Construction Loans

1. Construction-to-Permanent Loan

• One-time close loan
• Converts to a traditional mortgage after construction
• Only one set of closing costs

2. Stand-Alone Construction Loan

• Covers only the construction phase
• Requires separate closing for the permanent mortgage
• Good option if you plan to shop for a mortgage later

3. Owner-Builder Loan

• For borrowers who act as their own general contractor
• More difficult to qualify for unless you have professional experience

What Construction Loans Cover

Funds from a construction loan can typically be used for:

• Lot purchase (if not already owned)
• Permits and fees
• Materials and labor
• Architectural and design costs
• Landscaping and site work
• Appliances and finishes (based on scope of work)

How to Qualify for a Construction Loan in Kentucky

Key Requirements:

• Good credit score (typically 680+)
• Detailed construction plan and signed contract with a licensed builder
• Down payment of 10% to 20% (varies by lender)
• Income and asset verification
• Appraisal based on projected home value

We help you gather the necessary documentation and work with local appraisers and builders familiar with Western Kentucky construction guidelines.

Benefits of Working with Quality Home Mortgage

• Local experience with builders in Trigg, Christian, Caldwell, and Lyon Counties
• One-on-one guidance through loan structure and timeline
• Knowledge of construction-to-permanent loan options
• Competitive rates and personalized service

Real Buyer Story

“We didn’t know how to finance a new build, but Hiler and her team made it simple. They explained every draw, walked us through closing, and now our custom home is a reality.”
— Verified Construction Loan Client, Western KY

FAQs – Construction Loans in Kentucky

Can I use a construction loan to build on land I already own?

Yes. In many cases, the land’s value can count toward your equity and reduce your required down payment.

Do I need a builder selected before applying?

Yes. You must have a licensed, insured builder and a signed contract that outlines the construction schedule and costs.

How long does construction financing take?

The approval process can take 30 to 45 days, and the construction phase varies based on your build timeline. We’ll help you stay on schedule.

Can I get a fixed interest rate?

Many construction loans offer interest-only payments during construction with a fixed rate on the permanent loan once it converts.

Ready to Build Your Kentucky Home?

Building a home is a big step, but with the right financing partner, it doesn’t have to be overwhelming. At Quality Home Mortgage, we make it easy to understand your options, work with your builder, and fund your dream home.

📍 63 Lakota Drive, Suite D, Cadiz, KY 42211
📞 (270) 522-0700
📧 qualityhomemortg@bellsouth.net
⏲ Mon–Fri: 10:00 AM – 4:00 PM

Contact us today to learn more about construction loans in Kentucky — and start planning your perfect home.