New construction loans typically require 10 to 20 percent down, though some programs allow as little as 3 to 5 percent
The down payment for a new construction loan depends on the loan type and the lender's requirements. Conventional loans usually ask for 10 to 20 percent of the purchase price. FHA loans (Federal Housing Administration) allow 3.5 percent down. VA loans (for military members and veterans) and USDA loans (for rural properties) can go to zero percent down, meaning no down payment at all. The builder's financing incentives can also shift what you actually pay upfront.
The purchase price matters here. If the home costs $300,000 and your loan requires 15 percent down, you would put $45,000 down. If the same home qualifies for an FHA loan, you could put down $10,500 instead. The difference changes what you borrow and what your monthly payment looks like.
Key Takeaways
- Conventional new construction loans typically require 10 to 20 percent down, while FHA loans allow 3.5 percent and VA or USDA loans may require zero percent.
- Your down payment amount directly affects your loan size, monthly payment, and whether you pay mortgage insurance.
- Builders sometimes offer incentives that reduce your out-of-pocket down payment, though the loan amount stays the same.
- The construction phase and the permanent loan phase may have different down payment timing and requirements.
How down payment requirements differ by loan type
Conventional loans are mortgages not backed by a government agency. Most conventional lenders want 10 to 20 percent down for new construction. Some will go lower — 5 to 10 percent — but then you pay private mortgage insurance (PMI) until you reach 20 percent equity. PMI is an extra monthly cost that protects the lender if you stop paying.
FHA loans require 3.5 percent down on new construction, as long as the home meets FHA standards. The builder or the property must be FHA-approved. You also pay mortgage insurance with an FHA loan — an upfront insurance premium added to your loan amount, plus a monthly payment. This insurance stays for the life of the loan if you put down less than 10 percent.
VA loans are for active-duty military, veterans, and some surviving spouses. They typically require zero percent down. You do not pay mortgage insurance. VA loans have a funding fee instead, which is a one-time charge added to the loan amount (usually 1.4 to 3.6 percent of the loan amount, depending on your service history and down payment).
USDA loans are for rural properties and borrowers who meet income limits. They also typically require zero percent down and no mortgage insurance. USDA loans have a may provide fee, similar to the VA funding fee, added to your loan amount.
Down payment timing during construction versus at closing
New construction loans work in two phases: the construction loan phase and the permanent loan phase. The timing and amount of your down payment can differ between them.
During construction, you may not need to put down the full down payment upfront. The construction lender typically finances the building costs and releases funds to the builder in stages as work progresses. You might put down a smaller amount initially — sometimes just earnest money (a deposit showing you are serious about the purchase, usually 1 to 3 percent of the price). The rest of your down payment comes due at closing, when construction is complete and the permanent loan takes over.
At closing, you pay the full down payment amount to the permanent lender. This is when your down payment is actually subtracted from the purchase price to determine your loan amount. If you put down $45,000 on a $300,000 home, you borrow $255,000.
Builder incentives and how they affect your down payment
Builders sometimes offer incentives to move homes faster — price reductions, upgraded appliances, paid closing costs, or paid down payment information. These incentives do not change your loan amount or your actual down payment obligation. Instead, they reduce what you pay out of pocket.
For example: a builder offers $20,000 in closing cost information on a $300,000 home where you planned to put 15 percent down ($45,000). You still owe $45,000 as your down payment to the lender. But the builder's incentive covers $20,000 of your closing costs, so your total cash at closing is lower. The loan amount stays at $255,000.
Some builders offer down payment information directly, which works the same way — it reduces your out-of-pocket cost but does not change what the lender requires. Always ask whether an incentive is a price reduction (which lowers the purchase price and your loan) or a credit toward closing costs or down payment (which reduces your cash due but not your loan amount).
What happens if you put down less than 10 percent
Putting down less than 10 percent on a conventional loan triggers mortgage insurance. On a $300,000 home with 5 percent down ($15,000), you borrow $285,000 and pay PMI on top of your regular mortgage payment. PMI typically costs 0.5 to 1 percent of your loan amount per year, split into monthly payments.
You can remove PMI once you reach 20 percent equity in the home — either by paying down the loan or by the home's value increasing. This takes years for most borrowers. FHA mortgage insurance, by contrast, stays for the life of the loan if you put down less than 10 percent, so it is a permanent cost.
VA and USDA loans have no mortgage insurance at any down payment level, which is why they are often the cheapest option for borrowers who may have access to.
Earnest money and how it relates to your down payment
Earnest money is a deposit you make when you sign the purchase contract. It shows the builder you are serious about buying. Earnest money is typically 1 to 3 percent of the purchase price and is held in escrow (a neutral third-party account) until closing.
At closing, your earnest money is credited toward your down payment. If you put down $3,000 in earnest money on a $300,000 home and your down payment is $45,000, you owe an additional $42,000 at closing. The earnest money does not reduce your down payment requirement — it just counts as part of it.
If you back out of the purchase without a valid reason, you typically lose the earnest money. If the builder backs out or fails to complete the home, you get it back.
Frequently Asked Questions
Can I use a gift for my down payment on new construction?
Yes, most lenders allow down payment gifts from family members. You will need a gift letter stating the money is a gift, not a loan, and the donor's bank statement showing the funds. Some lenders limit how much of your down payment can be a gift — typically 10 to 25 percent — so the rest must come from your own savings.
What if I do not have the full down payment saved yet?
You can still make an offer with earnest money while you save. The builder will lock in the price, and you have time before closing to save the rest. Some builders offer financing for the down payment itself, though this is less common and adds to your total debt.
Do I pay down payment on the land and the house separately?
No. The down payment is on the total purchase price, which includes the land and the completed home. You do not split it between the two. The construction lender finances the entire project, and your down payment applies to the final sale price at closing.
Is a larger down payment worth it on new construction?
A larger down payment lowers your loan amount and monthly payment, and it avoids mortgage insurance on conventional loans. However, new construction homes sometimes appreciate quickly, so putting down less and investing the difference elsewhere may work for some buyers. This depends on your financial situation and local market conditions.
What if the home price increases during construction?
If the builder raises the price mid-construction, your down payment percentage stays the same but your dollar amount increases. If you agreed to a $300,000 price with 15 percent down ($45,000) and the builder raises it to $320,000, your down payment becomes $48,000. You can negotiate or walk away, depending on your contract terms.