New Home Builder Deposits (2023)

Quick Links

  • Builder Deposits
  • Here is a video in case you would rather watch
  • New home down payments vs builder deposit
  • Do you need a buyers agent for new construction?
  • How much is a builder deposit for a new home?
  • Custom home builder deposits
  • Should you get the construction loan?
  • Construction lender controls payments to builder
  • Production builder deposits
  • Spec home-Move in Ready deposits
  • Contract specifies deposit amount
  • Deposits whenyou have asmall down payment loan
  • Get pre-approvedfirst
  • Builder’s lender incentives

Revised November 25, 2019

New Home Builder Deposits (1)

Builder discussing deposits

(Video) New Home Construction Builder Deposits Video

Here is a video in case you would rather watch

Builder Deposits in a New Home Neighborhood.

New home down payments vs builder deposit

The downpayment on your new home is determined by your mortgage lender and is due when you close on your home .

The builder deposit is the money you pay the builder at time of contract and is usually non refundable if you walk away from the house. It will be applied to your down payment when you settle on the home.

Do you need a buyers agent for new construction?

It will help with risk and negotiation if you have a buyers agent familiar with new construction sales. The builder pays the buyers agent for bringing you and repeat business to the neighborhood. It also avoids the liability of seller agency for the builder. You won’t save money if you don’t have an agent. The fee is already factored in. Builders want agent sales.

Why you need a buyers agent for new construction.

How much is a builder deposit for a new home?

The deposit can be as little as $5000 or as much as 10%. The amount and timing of deposits depends on the neighborhood and builder. In the Triangle you will find new home neighborhoods with builders selling just a few custom homes a year to large national and regional builders (production builders). Builders allowing changes vary from only cosmetic upgrades to structural changes. The builders contract (totally biased toward them of course!) will detail the amount and timing of deposits and other payments.

(Video) New Construction - Your Deposit and Contract Day

Read about the differences between custom and production builders.

Custom home builder deposits

New Home Builder Deposits (2)

A small custom builder (up to about 20 houses a year) usually requires the largest deposit , often 5%-10% due at contract signing. It’s pretty much always non refundable so you will need to make sure you can get financing before you sign the contract. Builders feel justified with this large deposit because they will have to buy the lot from the developer, get a construction loan, and build to your specifications.

If you add upgrades after you sign the contract you will usually have to pay for a % of changes and upgrades in cash at the time of the change. Building a home ties up a significant amount of cash.If you have a home to sell you should go ahead and do that before you contract to build even if you have to rent during construction. Builders won’t do contingencies except in special cases when they were planning on building the home as a spec anyway.

I would not recommend signing a Custom builder contract and then putting your house on the market expecting a sale, even if you have the cash because the deposit is non refundable.

Should you get the construction loan?

In many developments ,the builder gets the construction loan and adds the construction loan interest to the cost of the house. You pay the builder deposit at signing and when the house is finished the builder pays off the loan with the proceeds from the sale.

(Video) When Is My Down Payment Due For A New Construction Home?

Sometimes a small builder doesn’t have the capital to buy the lot and get a construction loan. They will ask that you get the construction loan. Lenders usually will lend you 75-80% of the appraised value for a construction loan and you will be responsible for construction loan interest (interest only on the amount drawn) and any changes and upgrades above the amount of the loan.

Construction lender controls payments to builder

The bank will send a representative to check the progress of the home and releases construction funds to the builder depending on the % of completion according to a preset schedule. You can convert your construction loan financing to permanent financing at completion. Your lender will tell you when to lock in. There are some great long locks available for an extra cost.You shouldn’t have to give a builder deposit if you are getting the construction loan.

Production builder deposits

New Home Builder Deposits (3)

The production builders in our area really vary with the amount of deposits required. They range from a set amount of $5000-$10,000 or a percentage of around 3%-5%. Ask about additional deposits for change orders and upgrades in the design center.
If you are getting a low down payment loan such asa USDA or doctor loan, we can often negotiate the deposit amountand timing.

Spec home-Move in Ready deposits

If a builder has a home under construction theconstruction stage and the amount of customizing determine the deposits. If the house is basically finished (move in ready) and you are pre-approved 1% will usually be enough deposit. You may also be able to negotiate the price but more commonly upgrades depending on what other inventory the builder has.

Contract specifies deposit amount

The contract specifies the deposits and when they are due.. The builder contract protects the builder not the buyer. In my experience the builders won’t make changes at all to their contract but it is a good idea to have your attorney go over the contract with you so you understand what you are signing. You should also check the builder references and suppliers because there is risk involved for your deposit money and sometimes the clues that a builder is in financial trouble are not obvious.
Buying an existing home is the easiest way to go and you may be able to negotiate the price.Building your home is a fun and rewarding process If you prepare.

(Video) Earnest Money Deposit New Construction

Deposits whenyou have asmall down payment loan

Some lenders have little or no down payment loans even in 2019. These are often called doctor loans. FHA loans have small down payments. What do you do if the builder deposit is 5% or 10% and you don’t have that? I have found that builders will usually reduceor stage their deposit if their preferred lender has confirmedthe situation. This is my experience around the Triangle. Deposits may be different where you live.

Get pre-approvedfirst

Builder deposits are often non refundable and you want to make sure you can get your financing before you sign the contract. Often builders will pay some of the closing costs if you use their preferred lender. It’s still OK to get a local lender to pre qualify you first and then compare with the builder’s lender. Make sure you tell all lenders you shop know you are comparing.

The pre-approval is only as good as the information you provide your lender. Be very thoroughat this stage, you don’t want expensive surprises later. Your lender will check your credit and review your income and debts to determine the loan amount you will be approved for and the loan options. You will discuss what is a comfortable payment for you, what cash you will need for a down payment, and closing costs.

Builder’s lender incentives

Why get pre approved if most builders will pay some closing costs if you use one of their preferred lenders? If the incentive is coming from the lender and not the builder it pays to shop around because the lender will make up the incentive from the rate or fees. The closing cost incentive can be a good deal if the builder owns the mortgage company or if the builder contributes to the closing costs as well as the lender. The deal is always better if the lender knows you are comparing.

Your buyers agent will help with the deposit negotiations as well as the rest of the offer process.


How much do most builders require as a down payment? ›

The down payment required on new home construction loans is typically 20-30% and they usually carry a higher interest rate. The buyer will pay only the interest on a construction loan, at a variable rate, while the home is being built.

How much earnest money do you get for new construction? ›

When purchasing new construction, your earnest money deposit is usually 5% of the sales price. The builder typically mandates the amount as a part of their contract (see more on builder contracts below).

How much deposit can a builder ask for in the UK? ›

Buyers are usually asked to pay a deposit of between 10-30% of the total price of a new build upon exchange. This is paid to the developer's solicitor.

What questions should I ask a new construction builder? ›

20 Important Questions To Ask A Custom Home Builder
  • How long have you been building custom homes? ...
  • Do you have a portfolio of the finished custom homes you've built? ...
  • How customizable is my custom home? ...
  • Can you help me pick out the perfect homesite?
Jan 12, 2021

How much can a builder ask for a deposit? ›

Typically a contractor would ask for 50% upfront to cover the initial get go of a project. Like stated above materials and wage costs.

Should I pay a contractor 50% up front? ›

As the homeowner who is commissioning the project, it's reasonable to withhold at least 10% as your final payment. Avoid paying in full upfront, and definitely avoid paying anything before the contractor has evaluated the project in person.

How much deposit should you pay a builder? ›

Aim to push it down as much as possible, and don't agree to more than 25%. Always get a receipt for a deposit, as well as receipts for any materials it covers.

Do you need a bigger deposit for a new build? ›

Lenders often ask for a higher deposit up-front

You might find that you need to save a larger deposit in order to secure a mortgage on a new build property. The reason for this is that a lender tends to set a lower maximum loan to value (LTV) ratio on new build mortgages.

Are new build deposits refundable? ›

Your deposit is non-refundable, unless the contract between you and the seller is breached. This is why it is important to have a contract in place, clearly stating what the terms are and what happens if either party pulls out.

Is it normal to pay a deposit to a builder? ›

Builders sometimes ask for a deposit to pay for the materials to start the agreed job. If this happens after you agreed the contract: ask to see the invoice from the builder's supplier. pay the amount invoiced and insist on a receipt.

How much should I hold back from my builder? ›

You should only hold back payment equivalent to what any snaggings cost to put right. The only other thing you could hold money back on would be the roof to ensure it is watertight. This would mean that either you wait until the first rainfall or ask the builder to water test it.

How much can I deposit without getting questioned? ›

How Much Money Can You Deposit Before It Is Reported? Banks and financial institutions must report any cash deposit exceeding $10,000 to the IRS, and they must do it within 15 days of receipt. Of course, it's not as cut and dried as simply having to report one large lump sum of money.

What should be avoided in new construction? ›

New Construction Upgrades to Avoid
  • Appliances. If appliances aren't included with the house, you may be better off buying them yourself. ...
  • Lighting. Another new construction upgrade to avoid is lighting. ...
  • Cabinet hardware. ...
  • Kitchen backsplash. ...
  • Outdoor space. ...
  • Crown molding.
Mar 16, 2022

What do I need to know before meeting with a builder? ›

Before Meeting a Custom Builder, Do These 5 Things
  • Research local builders. Refine your builder list. ...
  • Ask questions. Meeting with a builder for the first time can be an overwhelming experience. ...
  • Show and tell. ...
  • Ask for references. ...
  • Ask to take a tour (or three).

How do you spot if your builder is struggling? ›


Our searches identify Australian builders with a pattern of unhappy customers or business failures or who are in, or are associated with someone in, a dangerous financial state.

How big of a deposit is suspicious? ›

Depositing a big amount of cash that is $10,000 or more means your bank or credit union will report it to the federal government. The $10,000 threshold was created as part of the Bank Secrecy Act, passed by Congress in 1970, and adjusted with the Patriot Act in 2002.

How does a deposit work on a new build? ›

For new homes, the deposit is usually payable directly to the builder, and held “in trust” by the builder's lawyer. Builders who are selling “pre-construction” homes may also require higher deposits than normally paid for re-sale properties. This allows the builder to use the money toward ongoing construction costs.

How much of a deposit gets flagged? ›

If you deposit over $10,000 in cash into your bank account, it requires special handling. The IRS requires banks and businesses to file Form 8300, the Currency Transaction Report, if they receive cash payments over $10,000. Depositing more than $10,000 will not result in immediate questioning from authorities, however.

What should you not say to a contractor? ›

Seven Things to Never Say to a Contractor
  • Never Tell a Contractor They are the Only One Bidding on the Job. ...
  • Don't Tell a Contractor Your Budget. ...
  • Never Ask a Contractor for a Discount if You Pay Upfront. ...
  • Don't Tell a Contractor That You Aren't in A Hurry. ...
  • Do Not Let a Contractor Choose the Materials.

Should you let a contractor know your budget? ›

If you have ever asked yourself if you should provide your contractor with a remodel budget, the answer is YES. Remodeling contractors ask you for your budget for several reasons, all of which are meant to help you.

Is it normal for a contractor to ask for money up front? ›

Although each contractor has their own terms and their own way of approaching billing issues, the typical process involves putting money down at the beginning of the project and paying the balance at the end. There might be exceptions, however, as the job proceeds, that involve asking for additional payment.

At what stages should I pay my builder? ›

For small projects payments for building work can be based on a payment schedule. These often follow milestones such as 20% foundations, 30% walls, 20% roof, 20% services, 10% completion.

Should builders ask for a deposit? ›

There is no industry standard; the quote often depends on the size of the project, resources and manpower needed, and the quality and availability of materials. Our advice is to be reasonable and fair. Don't ask for a deposit greater than 20% of the total cost up front, unless in exceptional circumstances.

How much cash can be given to builder? ›

You are legally not allowed to pay more than Rs 20,000 in cash for it. According to section 269SS of Income Tax Act, while transacting Immovable Property, 100% penalty will be levied if seller has accepted an amount of Rs. 20,000 or more in cash from the buyer.

Is bigger deposit always better? ›

The bigger deposit you put down, the lower the risk you are to the lender and the more deals you're likely to be able to access from providers. The bigger the deposit you can save, the stronger position you should be in. This is because mortgage interest rates are lower at 90% LTV compared to 95%.

Can I get a 95% mortgage on a new build? ›

Own New, an innovative scheme from Market Mortgage that will make competitive 95% mortgages available to more people buying new homes has been unveiled.

Why do banks not like new builds? ›

This is because most lenders believe new home buyers are paying a premium prices for new homes and the home will lose value the moment you move in. It can be very difficult to re sell a new home (at the fair market price) whilst the house builder's sales staff is still on the development.

Can you lose a house deposit? ›

At exchange of contracts both you and the seller are legally bound by the contract and the sale of the house has to go ahead. If you drop out, you are likely to lose your deposit.

What happens after you reserve a new build? ›

Once you've reserved your home, you'll need to secure your mortgage. If you already have a mortgage-in-principle (and you're happy to proceed with the same lender) go back to the lender to secure a formal mortgage offer. You'll need to have your mortgage application accepted before you can proceed to the next step.

What happens to my deposit if the developer goes bust? ›

If the developer has contracted with a housing warranty provider, they usually have a deposit guarantee pledge and will a purchaser's refund deposits. Therefore, it's best to buy a new build based on a reputable warranty provider such as NHBC, LABC, Build-Zone, BLP and the like, being in place.

Is a deposit the full price? ›

A deposit is usually 10% of the purchase price, a significant sum. The deposit is paid to the seller on exchange of contracts as part payment of the purchase price. A request for a deposit over 10% should be questioned as it may not be legally enforceable because it amounts to a penalty on the buyer.

Can I withhold payment to builder? ›

The law also states that a customer can withhold a reasonable amount of money on a building job. For example, a customer can withhold payment for a poorly installed light fitting on a full property rewire. They cannot, however, refuse to pay for other associated works, only the cost to rectify the specific problem.

Can you change your mind after paying a deposit? ›

If you paid using credit or debit card, you can contact the card provider and ask them to reverse the transaction. This is known as chargeback.

How do you negotiate a builder price? ›

How to Negotiate the Best Deal with a Builder
  1. Know the Builder's Incentives‍ ...
  2. Shop Around for Financing. ...
  3. Ask About Upgrades‍ ...
  4. Request Your HOA Dues to be Paid ‍ ...
  5. Select a Premium Lot‍ ...
  6. See if They'll Offer a Discount. ...
  7. Request Help with Your Closing Costs.
Apr 5, 2019

How much should I pay a builder per day? ›

Due to the nature of construction work and regional variations in costs, the average builder day rate can vary quite a lot depending on the work you need doing and the individual builder you hire. As a guide, you can expect to pay somewhere in the region of £240 - £300 per day for a builder.

What is a 10% hold back? ›

Basic Holdback: this occurs when 10% of the price of all services and materials provided under a contract or subcontract is to be withheld by the owner. The holdback is held until the opportunity for all liens to be claimed under the Act has expired, which includes up to the point of 'substantial completion'.

Can I deposit $50000 cash in bank? ›

How much cash can you deposit? You can deposit as much as you need to, but your financial institution may be required to report your deposit to the federal government.

How much money can I deposit in my bank account? ›

Generally, there is no limit on deposits. However, there are limitations on the amount of funds the Federal Deposit Insurance Corporation (FDIC) will insure. Please refer to the Understanding Deposit Insurance section of the FDIC's website for more information on FDIC deposit insurance.

Can bank Question cash deposits? ›

Under the Bank Secrecy Act, banks and other financial institutions must report cash deposits greater than $10,000. But since many criminals are aware of that requirement, banks also are supposed to report any suspicious transactions, including deposit patterns below $10,000.

Are new builds overpriced? ›

There are many advantages to a new build-property, which is also why they are more expensive. They come with lower maintenance costs and these homes are generally far more energy efficient which means gas and electricity bills are also lower.

Can you negotiate the price of a new build? ›

Always negotiate a new-build house price

Just because a new-build property is new, it doesn't mean the asking price is non-negotiable. You can make an offer in the same way you would if you were buying an older property. Of course, it's up to the developer if they wish to accept a lower offer or politely decline it.

What not to do while building a house? ›

  1. Choosing the Wrong New Home Builder. The biggest mistake you can make is choosing the wrong new home builder. ...
  2. Picking the Wrong Homesite. ...
  3. Not Doing Your Research. ...
  4. Not Being Realistic. ...
  5. Moving Too Fast. ...
  6. Choosing the Wrong Materials. ...
  7. Skimping on Details. ...
  8. Not Staying Organized.

Can you use 5% mortgage deposit for new builds? ›

With the new Deposit Unlock scheme, first time buyers and home movers can buy a new build home with just a 5% deposit.

How much of a down payment do you need for a $300 000 house? ›

You'll need a down payment of $9,000, or 3 percent, if you're buying a $300K house with a conventional loan. If you're using an FHA loan, you'll need a downpayment of $10,500, which is 3.5 percent of the purchase price.

How much down do you need for a 300K house? ›

Most lenders are looking for 20% down payments. That's $60,000 on a $300,000 home. With 20% down, you'll have a better chance of getting approved for a loan. And you'll earn a better mortgage rate.

Can I get a 5 deposit mortgage on a new build? ›

If you're in London, a 5% deposit will allow you to get a government loan of up to 40% of the purchase price of a new build home.


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