If you’re thinking about building a new home instead of buying an existing one, you’re probably wondering if the process is the same in terms of the down payment and mortgage you’ll need.
You may be surprised to learn the process to build a new home requires a few extra steps and a different financing structure than buying a resale home.
If you’re buying a resale house, you’ll typically get a standard mortgage: conventional loans can start at 3% down for qualified buyers, FHA loans at 3.5%, and putting 20% down lets you avoid private mortgage insurance.
However, if you’re building a new home, there are a few different requirements you need to meet.
Quick answer
- Builder deposit: due at contract signing and usually credited toward your down payment
- Construction loan down payment: often 10%–20% on a conventional loan, more than a resale purchase
- Low-down options exist: VA loans can require 0% and FHA loans 3.5% for eligible buyers
- 20% down avoids private mortgage insurance (PMI) on a conventional loan
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How much is a down payment on a house?
A down payment on a house typically ranges from 0% to 20% of the purchase price, depending on the loan. Conventional loans can start at 3% down for qualified buyers, FHA loans at 3.5%, and VA and USDA loans can require nothing down for eligible buyers. Putting 20% down on a conventional loan lets you avoid private mortgage insurance (PMI). On a $500,000 home, that is $15,000 at 3%, $17,500 at 3.5% and $100,000 at 20%.
| Loan type | Minimum down payment | Good to know |
|---|---|---|
| Conventional | As little as 3% for qualified buyers | Under 20% down usually means paying PMI |
| FHA | 3.5% with a qualifying credit score | Government-insured; mortgage insurance applies |
| VA | 0% for eligible veterans and service members | No PMI |
| USDA | 0% in eligible rural areas | Income limits apply; can also be used to build (see USDA guaranteed loans) |
| Construction loan (building) | Often 10%–20% | Builder deposit and land equity usually count toward it |
According to the Consumer Financial Protection Bureau, the larger your down payment, the lower the interest rate you are likely to get. If you cannot put 20% down, lenders usually require private mortgage insurance or an FHA, VA or USDA loan. Remember to budget for closing costs and moving expenses on top of the down payment.
The rest of this guide covers what changes when you build a new home instead of buying one, from builder deposits to construction loan down payments.
Earnest Money and Builder Deposits
When you begin the process to build a new home, a home builder will require you to pay a deposit to start the project. This amount can vary and you may be able to break it down into multiple payments, but typically you’ll be required to pay a specific amount as determined by your builder at the time of signing, and before construction officially begins. Typically your deposit with the builder becomes your down payment for the loan.
How Much Down Payment Is Required?
Depending on your builder, the deposit may be the only down payment you’re required to pay if it works out the right amount. However, in some cases and for proper planning, look to budget around 10% of the purchase price for your down payment. For current numbers, see the cost to build a house in NC.
With many builders you will get a construction loan. A construction-to-permanent loan finances the build and then converts into your permanent mortgage, so you close only once. During construction, you’ll only be responsible for the interest payments, but when your home is complete the full down payment will be required. If you paid 5% before construction began, that amount will count toward the total down payment owing at closing.
In some cases, the amount of the initial investment due is much less. Eligible veterans and service members may be able to finance with no down payment through a VA loan, and FHA (Federal Housing Administration) loans allow as little as 3.5% down with a qualifying credit score. Be sure to discuss this with your builder beforehand, as these options may not be available.
How Much Is a Construction Loan Down Payment?
A construction loan down payment is usually larger than the down payment on a resale home, because the lender is financing a house that does not exist yet. Conventional construction loans often require 10% to 20% down, and some lenders ask for more. Government-backed one-time-close programs can go lower for eligible buyers: FHA construction-to-permanent loans allow 3.5% down, and VA and USDA programs can allow 0% down.
Your builder deposit and any land equity usually count toward that amount. If you already own your lot, the equity in the land can cover some or all of the down payment, so building on your own lot can reduce how much cash you need at closing.
When is the down payment due on a new construction home?
Most buyers pay in stages. The builder deposit is due when you sign the contract, some builders ask for additional deposits when you finalize selections or upgrades, and the rest of the down payment is due at closing. With a construction-to-permanent loan, that closing happens before construction starts; when you buy a finished or nearly finished home, it happens when the home is complete.
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Seeing actual square footage and starting prices makes it easier to size your deposit and down payment before you talk to a lender.
Benefits Of A Larger Down Payment
Although having a larger down payment may seem like a lot of money to invest before you’ve even moved into your new home, consider the benefits.
You’ll Have A Lower Mortgage Payment
The more down payment you invest, the lower your mortgage amount will be on your new home. This equates to saving money each month on your payment, allowing you more financial flexibility for savings, paying down other debt, or spending more on the things you love to do.
You’ll Have More Equity In Your Home Right Away
The less you owe on your mortgage from the start, the more equity you’ll have built into your home as soon as you move in. Having more equity today gives you more financial freedom now and for your future.
Lenders Will See You As A Good Investment
The more you invest in your down payment, the more committed you look to lenders to paying your mortgage. Your lender could offer you better interest rates or more term options as a result, putting you in a better financial position.
You’ll Avoid Having To Pay Mortgage Insurance
If you put less than 20% down on your home, be prepared to take mortgage insurance into account. Freddie Mac estimates PMI typically costs about $30 to $70 per month for every $100,000 borrowed, depending on your credit score and down payment. Some may come with a pay-as-you-go payment option, while others are a lump sum payment at the time of mortgage origination.
Move-in ready
Homes you can buy without a construction loan
Copper’s available homes are finished or nearly finished, so you can use a standard mortgage and a single closing instead of construction financing.
Work Closely With Your Builder
Be sure to discuss required payments and fees with your builder early in the process. The more you understand about the finances required both upfront and at closing, the stronger position you’ll be in to control your finances throughout the process.
Depending on the type of loan you obtain to build your new home, you may also have the option to pay your down payment in installments throughout construction. Discuss these details with your builder and lender to learn about your payment options.
Although the down payment process to build a new home may be more stringent, it is worth every penny to have a home that is designed and built uniquely for your family’s needs. The key is to communicate early and often with your chosen home builder and to understand the finances of your contract thoroughly before signing on the dotted line.
Frequently asked questions
How much is a down payment on a house?
Typically 0% to 20% of the purchase price, depending on the loan: as little as 3% on a conventional loan, 3.5% on an FHA loan, 0% on VA and USDA loans for eligible buyers, and 20% to avoid PMI on a conventional loan.
What is the minimum down payment on a house?
For eligible buyers, VA and USDA loans can require no down payment. Otherwise, FHA loans start at 3.5% and some conventional loans at 3%. Building a home with a construction loan usually takes more, often 10% to 20%.
How much is a builder deposit on a new home?
It varies by builder and by how custom the home is. Your contract will spell out the amount and timing, and in most cases the deposit is credited toward your down payment at closing.
Can I use an FHA or VA loan to build a new home?
Often, yes. FHA and VA construction-to-permanent loans exist, but fewer lenders offer them and requirements differ, so ask your builder which lenders they work with before you sign.
Do I need 20% down to build a home?
No. Twenty percent down helps you avoid private mortgage insurance on a conventional loan, but many buyers put down less. Budgeting about 10% is a practical starting point for a construction loan.
Is the down payment different if I buy a move-in-ready new home?
Usually yes. A finished new home can be purchased with a standard mortgage, so the down payment rules match a resale purchase rather than a construction loan.
Keep reading: What credit score do you need to build a new home? · Can you build a new home with outstanding debt? · How long does new home construction take?
