New construction homes typically require 3% to 20% down, depending on your loan type and the builder's requirements
The down payment you'll need for a new construction home depends on which mortgage program you use and what the builder allows. A conventional loan usually requires 3% to 20% down. FHA loans (Federal Housing Administration) allow 3.5% down. VA loans (for military members and veterans) often require 0% down. USDA loans (for rural properties) also typically require 0% down. Some builders offer incentives that can reduce your out-of-pocket cost, though these work differently than down payment information.
New construction differs from buying an existing home in one key way: the builder may require a larger deposit upfront to lock in your price and lot, separate from your mortgage down payment. This deposit—often called an earnest money deposit or builder deposit—is usually 1% to 3% of the home price and goes toward your down payment once you close. You'll pay this before your mortgage lender gets involved.
The actual down payment you owe at closing depends on your loan type, not on the builder. Your mortgage lender sets that requirement. The builder's role is to accept the loan type you've chosen and to work with your lender during construction.
Key Takeaways
- Conventional loans require 3% to 20% down; FHA loans require 3.5% down; VA and USDA loans often require 0% down on new construction homes.
- Builders typically ask for an earnest money deposit of 1% to 3% of the home price before construction starts, which counts toward your down payment at closing.
- Your mortgage lender, not the builder, determines your final down payment amount based on your loan program and credit profile.
- Some builders offer closing cost credits or price reductions instead of traditional down payment help, which may lower your total cash needed at closing.
- You should lock in your mortgage rate and get pre-approval before signing a builder contract, so you know exactly what down payment you'll owe.
How builder deposits work and what they cover
When you sign a purchase agreement with a builder, you'll typically write a check for the earnest money deposit within a few days. This deposit shows the builder you're serious about the purchase and locks in your price and lot selection. The amount varies by builder but usually falls between 1% and 3% of the total home price. On a $400,000 home, that's $4,000 to $12,000.
This deposit goes into an escrow account held by a title company or the builder's attorney—not directly to the builder. At closing, the escrow agent applies this money to your down payment and closing costs. If you back out of the contract for a reason the builder considers your fault (not a financing contingency), you may lose this deposit. If financing falls through despite your good-faith effort, the deposit is usually returned to you.
The builder may ask for additional deposits as construction milestones are reached—for example, when the foundation is poured or framing is complete. These are separate from the initial earnest money deposit and also count toward your down payment at closing. Ask the builder upfront for a schedule of all deposits you'll owe and when they're due.
Down payment requirements by loan type
Conventional loans are mortgages not backed by a government agency. Lenders typically require 3% down for first-time buyers and borrowers with strong credit, though some require 5% or more. If you put down less than 20%, you'll pay private mortgage insurance (PMI), which protects the lender if you default. PMI costs 0.5% to 1.5% of your loan amount per year and is added to your monthly payment. You can remove PMI once you've paid down the loan to 80% of the home's value.
FHA loans require a minimum 3.5% down payment and are designed for borrowers with lower credit scores or limited savings. FHA loans include mortgage insurance that you pay upfront (1.75% of the loan amount) and monthly (0.4% to 0.9% per year). This insurance stays on the loan for the life of the mortgage if you put down less than 10%, or for at least 11 years if you put down 10% or more. FHA loans have limits on how much you can borrow, which vary by county.
VA loans are available to military members, veterans, and surviving spouses. Most VA loans require 0% down, meaning you don't need a down payment at all. You'll pay a one-time VA funding fee (1.4% to 3.6% of the loan amount, depending on your military status and down payment) that can be rolled into your loan. VA loans have no mortgage insurance requirement.
USDA loans are for homes in may be able to access rural areas and typically require 0% down. You'll pay a may provide fee (1% to 2% of the loan amount) upfront and an annual fee (0.35% of the loan amount). USDA loans have income limits and property location restrictions, so check your county's may be able to access before pursuing this option.
Builder incentives and how they affect your down payment
Builders sometimes offer incentives to move homes faster, especially in a slower market. These might include closing cost credits, price reductions, upgraded appliances, or free landscaping. These incentives don't directly reduce your down payment—your lender still requires the same percentage down—but they can reduce your total cash needed at closing.
For example, if a builder offers a $20,000 closing cost credit on a $400,000 home where you're putting 5% down ($20,000), the credit covers your closing costs entirely. You still owe the $20,000 down payment, but you don't need to bring additional cash for closing costs. The credit is applied at closing by the title company.
Be cautious about incentives that seem to reduce your down payment directly. Some builders advertise "we'll pay your down payment," but what they're actually doing is reducing the home price by that amount. The lender then calculates your down payment based on the reduced price, so your percentage down stays the same. This is a legitimate strategy, but it's not the same as the builder covering your down payment out of pocket.
Ask your lender whether any builder incentive will be counted as a gift or a price reduction, because this affects how your loan is structured. Some loan programs have rules about how much of your down payment can come from gifts versus your own funds.
Timing: when you'll owe each payment
| Payment | When Due | Amount | Where It Goes |
|---|---|---|---|
| Earnest money deposit | Within 3 to 5 days of signing purchase agreement | 1% to 3% of home price | Escrow account (title company or builder's attorney) |
| Additional builder deposits (if any) | At construction milestones (foundation, framing, etc.) | Varies by builder contract | Escrow account |
| Final down payment at closing | At closing (typically 30 to 60 days after construction ends) | Remaining balance to reach your required percentage | Lender (applied to loan) |
| Closing costs | At closing | 2% to 5% of loan amount | Various (appraisal, title, attorney, lender fees) |
Your earnest money deposit and any builder deposits are held in escrow and credited toward your down payment at closing. You won't write a separate check for the full down payment amount; instead, the escrow agent calculates what you still owe and you bring that amount to closing. Your lender will provide a closing disclosure 3 days before closing that shows exactly how much cash you need to bring.
What happens if you can't meet the down payment requirement
If you're short on cash before closing, you have a few options. Gift funds from family members can count toward your down payment on most loan programs, though you'll need a signed gift letter stating the money is a gift, not a loan. The gift letter must be provided to your lender before closing. Conventional loans typically allow gifts to cover up to 100% of your down payment; FHA loans allow gifts for the full down payment as well.
Some employers, nonprofits, and government programs offer down payment information for homebuyers. These are usually grants or forgivable loans that don't have to be repaid if you stay in the home for a set period (often 5 to 10 years). Availability varies widely by location and income level. Your lender can tell you whether any information programs are compatible with your loan type.
If you're close to closing and realize you're short, contact your lender when ready. Do not borrow the down payment from a credit card, personal loan, or other source without telling your lender first. Lenders pull your credit report again just before closing and will see new debt. New debt can lower your credit score enough to disqualify you or change your interest rate. Transparency with your lender is always the safest path.
Getting pre-approval before you sign with a builder
Before you sign a purchase agreement with a builder, get mortgage pre-approval from a lender. Pre-approval means a lender has reviewed your income, credit, and debts and confirmed how much you can borrow and what down payment they'll require. This takes 3 to 5 business days and costs nothing.
Pre-approval protects you because it locks in your interest rate (for a set period, usually 30 to 60 days) and confirms your down payment requirement before you commit to a builder contract. If you sign a builder contract without pre-approval and then discover your lender requires 10% down instead of the 3% you expected, you're in a difficult position. The builder contract is binding, and backing out may cost you your earnest money deposit.
Bring your pre-approval letter to your first meeting with the builder. It shows the builder you're a serious buyer and that you've already confirmed your financing. The builder will work with your lender during construction to may support the home meets lending standards.
Frequently Asked Questions
Can I use a gift from family to cover my down payment?
Yes, on most loan programs. You'll need a signed gift letter from the family member stating the amount, that it's a gift (not a loan), and that they don't expect repayment. Conventional and FHA loans typically allow gifts to cover your entire down payment. Provide the gift letter to your lender before closing.
What if the builder won't accept my loan type?
Some builders have preferred lenders or restrictions on loan types, but this is rare for conventional, FHA, VA, and USDA loans. If a builder refuses your loan type, ask why—it may be a misunderstanding. If they genuinely won't work with your lender, find a different builder. Don't let a builder pressure you into a loan program you didn't choose.
Do I have to put down 20% to avoid mortgage insurance?
On a conventional loan, yes—20% down eliminates PMI. On FHA loans, mortgage insurance is required regardless of your down payment. On VA and USDA loans, there is no mortgage insurance. If you can't put down 20% on a conventional loan, FHA may be cheaper if your credit score is lower, because FHA rates are sometimes better for borrowers with scores below 680.
What if construction takes longer than expected and my rate lock expires?
Rate locks typically last 30 to 60 days. If construction runs long, your lender can extend your lock, usually for a fee of 0.125% to 0.5% of the loan amount. Ask your lender about extension options before you sign the purchase agreement. Some builders include construction delays in their timelines, so ask for a realistic completion date.
Can the builder keep my earnest money deposit if I back out?
It depends on your reason. If you back out because financing fell through despite your good-faith effort to find a loan, the deposit is usually returned. If you back out for other reasons (you changed your mind, found another home), the builder may keep the deposit. Your purchase agreement spells out when you forfeit the deposit. Read this section carefully before signing.