The down payment on a new construction home is due at different points depending on how the build is financed. If you’re buying a finished home from a production builder, you’ll put down earnest money at contract signing, possibly a second deposit when you choose upgrades, and the remaining balance at closing once the home is complete. If you’re financing the build yourself with a construction loan, the lender will require your full down payment to be committed before it releases the first dollar to the builder.
Either path starts the same way: a deposit when you sign the purchase agreement.
The First Payment: Earnest Money at Signing
Your first out-of-pocket payment comes when you sign the purchase agreement or reserve a lot. Earnest money deposits generally run 1% to 10% of the purchase price, though some builders and markets prefer a flat figure between $5,000 and $10,000 regardless of the home’s price. In competitive markets, 3% to 5% strengthens your offer.
The deposit goes into an escrow account, usually held by a title company or the builder’s attorney. It isn’t gone — at closing it gets credited toward your total down payment, reducing what you owe on settlement day. But it isn’t fully protected either. If you walk away after your contingency periods expire, the builder can keep it. Common contingencies that let you cancel and recover the deposit include financing (you couldn’t get a loan), appraisal (the home appraised below the contract price), and inspection (major defects were found). If the builder cancels, you get the money back.
A Second Deposit at the Design Center
Production builders often require a separate deposit when you select upgrades and customizations. This one usually runs around 10% of the total upgrade cost, and it’s typically non-refundable. The builder has already ordered materials or adjusted the plan based on your selections, and they don’t want to eat that cost if you back out.
Like your earnest money, upgrade deposits are credited toward the down payment at closing. So they aren’t extra money on top — they’re early installments of what you’d owe anyway.
Production Builder: Balance Due at Closing
When you buy from a production builder (a company building an entire community of homes), the builder finances the construction. You pay the full down payment at closing, after the home is finished and has passed final inspections. The process closely mirrors buying a resale home.
You sign the contract months before the home is done, put down earnest money, and wait — often six to twelve months — while construction proceeds. During that window, lock in your mortgage financing and start moving your down payment funds into place. Once the builder issues a completion notice and the certificate of occupancy is in hand, you’ll schedule a walk-through and a closing date. At the table, you sign the loan documents and the title company collects the remainder of your down payment plus closing costs. Your earlier deposits come off the top.
Construction Loan: Down Payment Before the First Draw
Custom builds work differently. If you’re hiring your own builder, you’ll likely need a construction loan, and that changes the timeline significantly. Lenders require your down payment to be committed before they release the first draw to the builder. The lender wants your money in the deal first, so it absorbs the earliest losses if the project stalls.
Construction loans then release funds in stages as the builder hits milestones: foundation poured, framing complete, roof installed, and so on. You make interest-only payments during construction based on how much has actually been drawn — small at first, growing as more money is disbursed. Once the home is done, the loan either converts to a standard mortgage (a construction-to-permanent loan) or you pay it off with a separate mortgage (a two-time-close loan). Full principal-and-interest payments begin after that conversion.
How much you need up front depends on the program:
- Conventional construction loans: 5% to 20% of the total project cost, depending on credit score and the lender’s guidelines.
- FHA one-time close: 3.5% with a credit score of 580 or higher, though many lenders set their internal minimum closer to 640.
- VA one-time close: no down payment for eligible veterans and active-duty service members, as long as the appraised value meets or exceeds the purchase price.1Veterans Affairs. VA Purchase Loan
Because a construction loan covers both the land and the building costs, conventional down payment requirements tend to run higher than a standard purchase mortgage. Lenders view unfinished homes as riskier collateral, so expect stricter underwriting.
Using Land You Already Own
If you already own your building lot free and clear, that equity can count toward the construction loan down payment. The lender orders an appraisal of the lot, and the appraised value is credited as your contribution. If a $50,000 lot sits inside a $350,000 total project, you already have roughly 14% equity, which may fully satisfy the lender’s requirement. If you still owe money on the lot, only the difference between the appraised value and the remaining balance counts.
When a Low Appraisal Changes What’s Due
Before closing, the lender orders an appraisal. If it comes in below the contract price, the lender only finances a percentage of the appraised value, not the contract price. The gap becomes your problem, and it can dramatically change what you owe at settlement.
Say you agreed to pay $450,000 with 5% down. Your planned down payment is $22,500. If the appraisal comes in at $425,000, the lender finances 95% of that figure ($403,750), and you now need $46,250 at closing — roughly double what you budgeted. Your options: negotiate a lower price with the builder, bring the extra cash, or walk away. An appraisal contingency lets you cancel and keep your earnest money. Without one, you may forfeit the deposit.
Where the Money Has to Come From
Lenders don’t just look at how much you have. They look at where it came from. Money that has been in your bank account for at least 60 days before you apply is considered “seasoned” and requires no documentation beyond your bank statements. Large deposits that appear inside that 60-day window trigger questions, and the lender will ask you to explain and document each one.
Gift funds from family are allowed, but they need paperwork. The lender will require a gift letter stating the donor’s name, their relationship to you, the exact amount, and a clear statement that no repayment is expected. You’ll also need the donor’s bank statement showing they had the funds, proof of transfer such as a wire confirmation, and your bank statement showing the deposit. Have the donor sign the letter promptly after transferring the money and hand everything to your lender right away.
For 2026, the IRS annual gift tax exclusion is $19,000 per recipient.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 A donor can give up to that amount to any individual without filing a gift tax return. Gifts above $19,000 require the donor to file IRS Form 709, though no tax is usually owed thanks to the lifetime exemption. That’s the donor’s tax obligation, not yours, but it’s worth coordinating if parents or relatives are helping.
Getting the Money to the Closing Table
Once you have the exact cash-to-close figure, you’ll move the money to the title company or escrow agent. The two standard methods are a domestic wire transfer and a certified cashier’s check. Wires are more common and typically clear the same business day if you initiate them before your bank’s cutoff. Banks charge $20 to $50 for outgoing wires. A cashier’s check drawn on a federally insured bank works too — make it payable to the escrow agent or title company as instructed.
Wire fraud is a serious risk at closing. Scammers monitor emails between buyers, agents, and title companies, then send fake instructions with altered account numbers, sometimes minutes before funds are due. If you wire to a fraudulent account, recovery is extremely difficult. Always verify wire instructions by phoning the title company at a number you obtained independently, not a number pulled from the email. Treat any last-minute change to wiring details as a red flag and confirm by voice before sending.
State practice varies on timing. In “wet” closing states, funds are exchanged at the table the same day you sign. In “dry” states, documents are signed first and funds disburse a few business days later. Your title company or closing attorney will tell you which applies and when the money needs to arrive.