Down payment requirements for new construction start at 10 percent, but most builders require 20 percent or more
When you build a house, you pay the builder in stages as construction progresses, not all at closing like you would with an existing home. Your down payment is typically due at signing, and it's usually larger than what you'd put down on a purchase. Most builders require between 10 and 20 percent of the total build price upfront, though some ask for as much as 25 percent. A few builders will accept 5 percent, but this is uncommon and usually comes with higher interest rates or additional fees.
The exact amount depends on the builder, the loan type, your credit score, and local market conditions. Construction loans work differently from mortgage loans—the lender disburses money in draws as work is completed, and your down payment secures your place in the builder's schedule and protects the builder if you walk away before closing.
Key Takeaways
- Most builders require 10 to 20 percent down at signing, with 20 percent being the standard for conventional loans.
- Your down payment is separate from closing costs, which typically add another 2 to 5 percent of the build price.
- Construction loans require you to pay interest during the building phase, which can add thousands to your total cost.
- If you back out after paying your down payment, the builder usually keeps it unless your contract includes a contingency clause.
- FHA construction loans allow down payments as low as 3.5 percent, but require mortgage insurance and have stricter builder requirements.
What down payment amount actually means in construction
A down payment on new construction is not the same as a down payment on a house you're buying. When you buy an existing home, your down payment is the cash you bring to closing. When you build, your down payment is paid to the builder at signing—sometimes months or years before you close—and it sits in an escrow account while construction happens.
This money protects the builder's investment in materials and labor. If you cancel the contract, the builder keeps the down payment as compensation for the work already done and the opportunity cost of not selling to someone else. Some contracts allow you to recover part of your down payment if the builder is at fault for delays or construction defects, but this varies widely by builder and state.
Your down payment also reduces the amount you need to borrow through a construction loan. If your build costs $400,000 and you put down $80,000 (20 percent), you'll borrow $320,000. That borrowed amount is what you'll pay interest on during construction.
Down payment amounts by loan type
| Loan Type | Typical Down Payment | Other Requirements |
|---|---|---|
| Conventional construction loan | 15–25 percent | Credit score 680+, debt-to-income ratio under 43 percent |
| FHA construction loan | 3.5–10 percent | Credit score 580+, mortgage insurance required, builder must be FHA-approved |
| VA construction loan | 0 percent (if you may have access to) | Active duty or veteran status, no mortgage insurance, builder must accept VA loans |
| USDA construction loan | 0 percent (if you may have access to) | Income and location limits, property must be in may be able to access rural area, no mortgage insurance |
| Portfolio or builder-specific loan | 10–20 percent | Varies by lender; some builders have in-house financing with different terms |
Conventional loans are the most common route and typically require the highest down payment. FHA loans let you put down less, but you'll pay mortgage insurance premiums for the life of the loan, which increases your monthly payment. VA and USDA loans may allow zero down if you meet income and may be able to access requirements, but not all builders work with these programs.
How construction loan draws affect your down payment
After you close on your construction loan, the lender doesn't hand you all the money at once. Instead, they release funds in draws—usually 5 to 8 draws over the course of construction, tied to specific milestones like foundation completion, framing, electrical rough-in, and final inspection. Your down payment is not part of these draws; it stays in escrow and is applied to your final mortgage at closing.
During construction, you typically pay interest only on the amount that has been drawn so far, not on the full loan amount. This is called interest-only payments. If your total loan is $320,000 but only $80,000 has been drawn in the first month, you pay interest on $80,000, not $320,000. This changes each month as more draws are released.
When you reach final closing, your construction loan converts to a standard mortgage. Your down payment is credited toward your principal, and you begin making regular principal-and-interest payments over 15 or 30 years.
Closing costs are separate from your down payment
Your down payment covers only the builder's price for the house. Closing costs—appraisal, title search, survey, inspections, loan origination fees, and insurance—are paid separately, usually at final closing. These typically run 2 to 5 percent of the build price on top of your down payment.
On a $400,000 build with a 20 percent down payment, you'd pay $80,000 down, then another $8,000 to $20,000 in closing costs. Some builders offer closing cost assistance or incentives, especially in slower markets, but this is negotiable and not may provide.
What happens if you cancel after paying your down payment
Once you sign a construction contract and pay your down payment, backing out usually means losing that money. The builder's contract typically states that the down payment is non-refundable if you cancel for any reason other than the builder's failure to perform or breach of contract.
Some contracts include contingency clauses that let you recover your down payment if certain conditions aren't met—for example, if you can't obtain financing, if the lot is found to have environmental issues, or if the builder fails to start construction by a certain date. Read your contract carefully before signing, because these protections vary widely. A real estate attorney can review your contract and explain what contingencies protect you and which ones don't.
If the builder goes bankrupt or abandons the project, your down payment may be at risk depending on how it was held and your state's laws. This is rare but has happened, especially during economic downturns.
How to lower your down payment requirement
If 20 percent feels out of reach, you have a few options. FHA construction loans allow as little as 3.5 percent down, though you'll pay mortgage insurance. Some builders offer incentives or price reductions in slower markets, which effectively lowers your down payment as a percentage. A few builders will negotiate down to 10 percent if you have strong credit and a solid pre-approval letter.
You can also ask whether the builder will let you pay part of your down payment at signing and the rest at a later draw stage, though most won't. Some builders offer to credit a portion of your down payment toward upgrades or closing costs, which doesn't lower the cash you need but can reduce your total out-of-pocket cost.
If you have a VA or USDA loan and meet the requirements, you may not need a down payment at all. These programs are designed to make homeownership more accessible, but not all builders participate, so confirm this early in your search.
Frequently Asked Questions
Can I use a gift for my down payment on new construction?
Yes, most lenders allow gift funds for down payments on construction loans, but they require a signed gift letter stating the money is a gift, not a loan. The person giving the gift usually cannot expect repayment. Some lenders limit how much of your down payment can be a gift; others allow 100 percent. Ask your lender before accepting a gift.
What if I don't have the full down payment saved yet?
You can't close on a construction loan without the down payment in hand. Some builders will let you sign a contract with a smaller deposit (sometimes called an earnest money deposit) while you save the rest, but you must have the full down payment before the construction loan closes. This is usually 30 to 60 days after signing the contract.
Do I pay property taxes during construction?
Property taxes typically don't start until you receive the certificate of occupancy and the house is officially complete. However, this varies by county. Some counties begin assessing taxes once the foundation is laid. Ask your local assessor's office and your builder when taxes will begin on your property.
Can the builder keep my down payment if they don't finish on time?
No, delays alone don't give the builder the right to keep your down payment. However, if your contract doesn't include a completion deadline with penalties, the builder has little incentive to finish quickly. Read your contract for language about timelines and what happens if the builder misses them. Some contracts include liquidated damages clauses that compensate you if construction is delayed beyond a certain date.
What's the difference between a down payment and earnest money?
Earnest money is a smaller deposit (usually 1 to 3 percent) you pay when you sign the contract to show you're serious. Your full down payment is due at closing on the construction loan, which happens before building starts. Earnest money is credited toward your down payment, so if you put down $4,000 in earnest money, you'd owe the remaining $76,000 at loan closing on a $400,000 build with 20 percent down.