Down payments for new construction typically start at 3% to 5%, but builders often require 10% to 20% before closing

New construction down payments work differently than resale homes because the builder controls the timeline and the closing date is months away. Most builders require a smaller initial deposit—often 3% to 5% of the purchase price—to lock in your contract. But before you close, you'll need to pay a second, larger down payment, usually 10% to 20%, directly to the builder or their lender. The exact amount depends on the builder, the loan program you're using, and whether you're putting money down at signing or waiting until closer to closing.

The reason for this two-step structure is simple: the builder needs proof you're serious about buying before they start construction, but they also need a larger cushion before they hand over the keys. If you walk away after construction starts, the builder keeps that initial deposit. The final down payment protects the builder's lender if something goes wrong during construction or if you can't close on time.

Key Takeaways

  • Initial deposits at contract signing are typically 3% to 5% of the purchase price and are held in escrow until closing.
  • A second down payment of 10% to 20% is usually due before closing, and this amount varies by builder and loan type.
  • FHA loans on new construction often require 3.5% down, but builders may still ask for a larger deposit upfront to cover construction costs.
  • Conventional loans usually require 5% to 20% down, and some builders offer incentives that can reduce or cover your down payment entirely.
  • Your down payment schedule is written into your purchase agreement, so read it carefully before signing—you cannot change it later without renegotiating.

How the two-payment structure works

When you sign a purchase agreement for new construction, you typically write a check for 3% to 5% of the home's price. This money goes into an escrow account held by a title company or attorney, not to the builder. The builder uses this deposit as proof that you intend to buy; if you back out without a valid reason, the builder keeps it. If you close on time, this deposit is credited toward your final down payment or closing costs.

The second payment happens at closing, usually 30 to 60 days before you get the keys. This is when you pay the remaining down payment owed—the difference between your initial deposit and your total down payment percentage. For example, if you put down 5% at signing and your loan requires 15% down, you'll owe another 10% at closing. This second payment goes directly to the lender or builder's attorney and is part of your closing disclosure.

Some builders allow you to delay the second payment until a few weeks before closing, which can help with cash flow. Others require it 60 to 90 days before closing. Your purchase agreement will specify the exact dates and amounts, so ask your real estate agent or the builder's sales representative to walk you through the payment schedule before you sign.

Down payment requirements by loan type

FHA loans allow down payments as low as 3.5%, but most builders still ask for a 10% deposit upfront. The builder's reasoning is that FHA loans take longer to close and carry more conditions than conventional loans. Even though your final down payment might only be 3.5%, the builder wants the larger upfront deposit to cover construction costs and protect against loan denial. Your purchase agreement will show both numbers separately.

Conventional loans typically require 5% to 20% down, depending on your credit score and the lender. Builders usually ask for 10% to 15% upfront, with the remainder due at closing. If you're putting down 20% or more, some builders will accept a smaller initial deposit because your loan is less risky. Ask the builder's sales team what they require for your specific loan program before you commit.

VA loans allow zero down payment, but builders still require an initial deposit—usually 3% to 5%—to hold your contract. This deposit is credited toward closing costs rather than a down payment. The VA loan itself covers the full purchase price, so you won't owe a second down payment at closing. However, you may owe closing costs, which can range from 2% to 5% of the purchase price depending on your lender and location.

USDA loans also allow zero down payment, with the same deposit structure as VA loans. The builder requires an upfront deposit to secure the contract, but your USDA loan covers the purchase price at closing. Like VA loans, you'll owe closing costs but no down payment.

Builder incentives and how they affect your down payment

Many builders offer incentives—closing cost credits, upgraded appliances, or free landscaping—to attract buyers. Some of these incentives can be applied directly to your down payment, reducing the cash you need to bring to closing. For example, a builder might offer a $20,000 closing cost credit, which can cover part or all of your down payment depending on the home's price.

Read the fine print on any incentive offer. Some credits only apply to closing costs, not down payment. Others are only available if you use the builder's preferred lender, which may charge higher rates. A few builders will reduce your down payment requirement if you close quickly or buy during a slow sales period, but this is negotiable and not may provide. Always ask whether an incentive can be applied to your down payment before you sign the purchase agreement.

What happens if you can't pay the down payment on time

If you miss a down payment deadline, the builder can cancel your contract and keep your initial deposit. This is written into nearly every purchase agreement for new construction. The builder's reasoning is that missing a payment signals you may not be able to close on time, which disrupts their construction schedule and their cash flow.

If you're facing a cash shortage, contact the builder's sales representative or your real estate agent immediately. Some builders will negotiate a later payment date if you're close to closing and your loan is on track. Others will not. Your best option is to ask your lender whether you can increase your loan amount to cover the down payment, though this increases your monthly payment and may not be possible if you're already at your debt limit.

Down payment timing and construction delays

New construction timelines shift constantly. If the builder falls behind schedule, your closing date moves, and so does your final down payment due date. Your purchase agreement should specify how many days before the new closing date your down payment is due—typically 30 to 60 days. If the builder delays closing by six months, your down payment deadline also moves six months forward.

This works in your favor if you need more time to save money. It works against you if you've already saved the money and it's sitting in a low-yield account. Ask your lender whether you can lock in your down payment amount in writing, so the builder can't ask for more if prices rise during construction. Some lenders will do this; others won't. Getting this in writing before you sign the purchase agreement is much easier than negotiating it later.

How to budget for your total down payment and closing costs

Your total cash needed at closing includes your down payment plus closing costs. Closing costs for new construction typically run 2% to 5% of the purchase price and cover appraisal, inspection, title insurance, and lender fees. Some of these costs can be rolled into your loan, but the builder may require you to pay them separately.

Create a timeline with your lender showing when each payment is due. Include your initial deposit at signing, your second down payment 30 to 60 days before closing, and your closing costs. Add a 10% buffer for unexpected costs or construction delays. If the builder offers incentives, subtract those from your total. This gives you a clear picture of how much cash you need and when you need it.

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'll need a signed gift letter stating the money is a gift, not a loan, and your lender will verify the funds came from the donor's account. The builder doesn't care where the money comes from—only that it arrives on time.

What if the builder goes bankrupt before my home is finished?

Your initial deposit may be at risk if the builder files for bankruptcy during construction. Some states require builders to hold deposits in escrow accounts that are protected; others don't. Check your state's new construction laws and ask the title company whether your deposit is protected before you sign the purchase agreement.

Can I negotiate a lower down payment with the builder?

Yes, especially in a slow market or if you're buying a model home that's already built. Builders sometimes reduce down payment requirements to close sales faster. Your real estate agent can ask, but the builder is under no obligation to agree. The worst they can say is no.

Do I have to use the builder's preferred lender?

No, but some builders offer down payment credits or rate discounts if you do. Compare the builder's lender against at least two other lenders before deciding. A lower rate from an outside lender may save you more money over time than a down payment credit from the builder's lender.

What if I want to back out after paying my initial deposit?

You'll lose your initial deposit unless your purchase agreement includes a contingency clause—such as a financing contingency or inspection contingency—that lets you cancel under certain conditions. Read your contingencies carefully before signing. Once construction starts, most builders won't refund your deposit even if you have a valid reason to cancel.