New construction down payments start at 3% for FHA loans, 5% for conventional loans, and 10% to 20% for jumbo mortgages—but builders often require more upfront.
The down payment you need depends on which loan type you choose and what the builder demands. A Federal Housing Administration (FHA) loan lets you put down as little as 3.5%, while conventional loans typically require 5% to 20%. Builders, however, often ask for a separate deposit—usually 1% to 5% of the purchase price—before construction begins, on top of whatever your lender requires at closing.
New construction is different from buying an existing home because the builder is taking on construction risk. That's why they want money from you early, even though your mortgage lender won't fund the full amount until the house is finished. You end up writing checks at multiple stages: an initial deposit to reserve the lot, another when the foundation is poured, another at framing, and so on. These builder deposits are separate from your down payment to the lender.
Key Takeaways
- Builder deposits (1% to 5% of purchase price) are required before construction starts and are separate from your mortgage down payment.
- FHA loans allow down payments as low as 3.5%, while conventional loans typically start at 5%, but builders may require larger deposits regardless of your loan type.
- Your total cash outlay before closing includes the builder deposit, earnest money, and any upgrades or lot premiums you choose to add.
- Construction loans fund in stages tied to building milestones, so your lender will not release the full mortgage amount until the home is complete.
- Jumbo mortgages (loans above conventional limits) usually require 10% to 20% down and stricter builder approval before construction begins.
How builder deposits work and when you pay them
When you sign a purchase agreement with a builder, you typically put down an initial deposit—often called earnest money—to show you are serious. This is usually 1% to 3% of the purchase price and goes into an escrow account. The builder holds this money and applies it toward your down payment at closing. If you back out after the agreement is signed, the builder may keep part or all of this deposit, depending on your contract terms.
After you are under contract, the builder will ask for additional deposits at key construction milestones. These are not part of your mortgage down payment; they are payments to the builder for work already done or about to begin. A typical schedule might look like this: 1% at foundation, 1% at framing, 1% at roof, and 1% at final inspection. By the time the house is finished, you may have paid 5% to 10% of the purchase price directly to the builder, separate from what your lender requires.
Your mortgage lender will not release funds until the home is substantially complete and passes inspection. At that point, the lender pays off the builder's construction loan, and your mortgage begins. The deposits you made along the way are credited against your down payment and closing costs, so you are not paying twice—but you do have to have the cash available months before closing.
Down payment requirements by loan type
FHA loans allow the lowest down payment: 3.5% of the purchase price. However, FHA has strict rules about new construction. The builder must be FHA-approved, the home must meet FHA property standards, and you must occupy it as your primary residence. FHA also requires a home inspection and appraisal before closing. If the appraisal comes in below the purchase price, you may have to renegotiate or cover the difference yourself.
Conventional loans typically require 5% down for first-time buyers and 10% to 20% for others, depending on your credit score and debt-to-income ratio. Conventional loans are faster to close than FHA loans and have fewer restrictions on builder approval, but they require private mortgage insurance (PMI) if you put down less than 20%. PMI adds to your monthly payment and does not go toward building equity.
Jumbo mortgages—loans above the conventional limit, which varies by county but is often $766,550 or higher—usually require 10% to 20% down. Jumbo lenders are more cautious with new construction because the builder's financial stability matters more. They may require proof that the builder has completed similar projects on time and within budget. Some jumbo lenders will not finance new construction at all, so you need to confirm this before signing a purchase agreement.
VA loans (for military members and veterans) allow 0% down on new construction, but the builder must be VA-approved and the property must meet VA standards. USDA loans (for rural properties) also allow 0% down if you meet income limits, but new construction may be able to access varies by lender.
What happens if you do not have the full down payment ready
If you cannot afford the builder deposits on the schedule they set, you have a few options. Some builders will negotiate a lower initial deposit or spread payments over a longer period, especially if you have a strong pre-approval letter from your lender. Others will not budge. Before you sign a purchase agreement, ask the builder for their deposit schedule in writing and make sure you can meet each deadline.
If you fall short, you can ask your lender about a construction loan (also called a construction-to-permanent loan). This is a short-term loan that covers the builder deposits and construction costs while the home is being built. Once construction is complete, the construction loan converts to your permanent mortgage. Construction loans have higher interest rates than mortgages and require you to may have access to based on the finished home's value, not the current purchase price.
Another option is to delay your purchase until you have saved more. Builders often offer incentives—upgraded appliances, paid closing costs, or price reductions—to move inventory quickly. If you are not ready to close, walking away from a deposit is painful, but it may be better than stretching yourself too thin.
How upgrades and lot premiums affect your total cash outlay
The purchase price you see in the builder's brochure is usually the base price for a standard lot and standard finishes. Most buyers add upgrades: granite counters, hardwood floors, a finished basement, a larger garage. Each upgrade costs extra and is added to your purchase price. Your down payment is calculated on the final price, not the base price, so upgrades increase how much cash you need upfront.
Lot premiums work the same way. If you choose a corner lot, a lot with a view, or a lot in a premium location within the development, the builder charges more. This premium is added to the purchase price and increases your down payment requirement. A $50,000 lot premium on a $400,000 home means your down payment jumps from $20,000 (5%) to $22,500 (5% of $450,000).
Some builders offer incentives to offset these costs: they may pay part of your closing costs, cover some upgrades, or reduce the price if you buy during a slow sales period. These incentives reduce your out-of-pocket cash at closing, but they do not reduce the builder deposits you pay during construction. Read the fine print carefully to understand what is included in the incentive and when it applies.
Timing: when you need the money and how long it takes
You need your initial deposit within days of signing the purchase agreement—usually by the end of the week. This money goes into escrow and is held by a title company or the builder's attorney. After that, builder deposits are due on a schedule tied to construction milestones. The builder will notify you when each milestone is reached and when payment is due. If you miss a payment, the builder can stop work or cancel the contract.
Construction typically takes 4 to 12 months, depending on the home's size and complexity. During this time, you are making deposits but not yet paying your mortgage. Once the home is complete and passes final inspection, your lender will order an appraisal and title search. This process usually takes 2 to 4 weeks. After the appraisal is approved, you will schedule a closing date, typically 7 to 10 days later.
At closing, your lender funds the full mortgage amount. The builder's construction loan is paid off, and the title transfers to you. The deposits you made during construction are credited against your down payment and closing costs. If your deposits exceed your down payment requirement, the excess is applied to closing costs. If they fall short, you pay the difference at closing.
Red flags and protections when dealing with builder deposits
Read your purchase agreement carefully before you sign. Pay attention to the deposit schedule, what happens if the builder goes bankrupt, what happens if you back out, and whether your deposits are held in an escrow account or by the builder directly. Deposits held in escrow are safer because a third party controls the money. Deposits held by the builder are at risk if the builder fails financially.
Ask whether the builder has a history of completing projects on time and within budget. Check online reviews, talk to people who bought from this builder, and verify that the builder is licensed and insured. If the builder has a pattern of delays or cost overruns, your deposits may be tied up for longer than expected, and you could face a gap between when your construction loan ends and when the home is actually finished.
Confirm that your lender will fund a construction-to-permanent loan with this builder. Some lenders have a list of approved builders; others will finance any builder. If your lender will not finance this builder, you may have to find a different lender or a different home. This is worth checking before you sign a purchase agreement.
Frequently Asked Questions
Can I use a gift for my down payment on new construction?
Yes, most lenders allow gift funds for down payments, but they have rules. The gift must come from a family member, and the lender will require a gift letter stating that the money does not have to be repaid. Some lenders limit how much of your down payment can be a gift; others allow 100%. Builder deposits, however, usually must come from your own savings—lenders rarely allow gifts for these.
What if the home is not finished by the closing date?
Your purchase agreement should specify what happens if construction delays occur. Some agreements allow you to walk away without penalty; others require you to close on time regardless. If the home is not ready, you may have to extend your construction loan, which costs more money. Before signing, negotiate language that protects you if delays happen beyond the builder's control (weather, supply shortages).
Do I have to pay property taxes during construction?
No. Property taxes are typically assessed after the home is complete and the title transfers to you. You begin paying property taxes with your first mortgage payment, which includes an escrow amount for taxes and insurance. The builder may pay property taxes during construction, but this is their responsibility, not yours.
What if my appraisal comes in lower than the purchase price?
If the appraisal is lower, your lender will only finance based on the appraised value, not the purchase price. You have three options: renegotiate the price with the builder, cover the difference in cash, or walk away. Walking away may cost you your deposit, depending on your contract. This is why getting a pre-approval letter before signing is important—it gives you an idea of what the lender thinks the home is worth.
Can I lock in my interest rate before construction is complete?
Yes, most lenders offer rate locks for new construction, but the lock period is usually shorter than for existing homes—often 30 to 60 days instead of 60 to 120 days. If construction takes longer than your lock period, you may have to pay a fee to extend the lock or accept a new rate. Discuss rate lock options with your lender before signing the purchase agreement so you understand the costs and timeline.