How New-Construction Financing Differs from Resale
When you buy a resale home, the house already exists. You get pre-approved, make an offer, and close in 30-45 days. New construction is different because the home may not be built yet. The timeline from contract to closing can be 6-12 months, which creates unique financing challenges — especially around rate locks and appraisals.
The good news: most buyers financing new construction from a production builder (Lennar, D.R. Horton, Pulte, etc.) use standard conventional or government-backed loans — the same types you would use for a resale. True construction loans are typically only needed for custom builds on your own land.
Types of Loans for New Construction
Conventional Mortgage
The most common loan type for production builder homes. You get pre-approved, sign the builder contract, and close when the home is complete. The lender does a final appraisal before closing. Down payment requirements range from 3% to 20% depending on the program and your credit profile.
FHA Loans
FHA loans work for new construction with as little as 3.5% down. The builder and community must meet FHA requirements. Most national builders are FHA-approved. FHA loans require mortgage insurance regardless of down payment, which adds to your monthly cost.
VA Loans
VA loans offer 0% down payment for eligible veterans and active-duty service members. VA loans work for new construction, but the builder and property must meet VA minimum property requirements. VA loans do not require mortgage insurance.
Construction-to-Permanent Loans
Used primarily for custom homes on your own lot. This is a two-phase loan: the construction phase (where the lender disburses funds as building progresses) and the permanent phase (which converts to a standard mortgage at completion). These loans have higher requirements — typically 20%+ down, higher credit scores, and more documentation.
Stand-Alone Construction Loans
A separate loan for the construction phase only. You close on a permanent mortgage when the home is complete. This means two closings and two sets of closing costs. Less common, but sometimes used for custom builds where the buyer wants to shop for the best permanent financing at the end.
Financing Timelines by Home Type
| Home Type | Timeline to Close | Financing Notes |
|---|---|---|
| Move-in ready (inventory) | 30-45 days | Standard mortgage. Home exists, appraisal is straightforward. |
| Spec home (under construction) | 1-4 months | Standard mortgage. Lock rate closer to completion. Appraisal done near end. |
| Presale (to-be-built) | 6-12 months | Extended rate lock needed. Pre-approval may need to be refreshed. |
| Custom build (your lot) | 8-18 months | Construction loan required. Higher down payment and credit requirements. |
Understanding Rate Locks for New Construction
A rate lock guarantees your interest rate for a specific period. For a resale home, a 30-60 day lock is standard. For new construction that will not close for 6-12 months, you need an extended rate lock.
Extended rate locks are not free. Lenders typically charge for longer lock periods — the longer the lock, the higher the cost. Some builder preferred lenders include extended rate locks as part of their incentive package, which can be a genuine advantage.
Another option: a "float down" provision that lets you lock at a higher rate now but take a lower rate if rates drop before closing. Not all lenders offer this, and the terms vary. Ask about it specifically.
For more on builder preferred lenders and how to compare, read the truth about builder lender credits.
Deposits and Earnest Money
Builder deposits work differently from resale earnest money. Builders typically require a deposit at contract signing, often with additional deposits at specific milestones (design center completion, start of construction, etc.). Total deposits can range from 1% to 10% of the purchase price depending on the builder.
Important:Builder deposits are often non-refundable after specific contingency periods expire. Understand the deposit schedule and refund terms before you sign. Your buyer's agent reviews all of this in the contract — another reason you need independent representation.
Appraisals for New Construction
The appraisal happens near the end of construction, once the home is substantially complete. The appraiser compares your home to recent comparable sales in the area — including other new construction in the same community.
In a new community with few closings, comparable sales can be limited, which sometimes leads to appraisal challenges. If the appraisal comes in below the purchase price, you have options: the builder may reduce the price, you may need to bring additional cash, or the deal may fall through.
An experienced buyer's agent helps navigate appraisal issues and knows how to present additional comparables to the appraiser through the lender's reconsideration of value process.
Tips for a Smooth Financing Experience
- Get pre-approved before you start looking at model homes
- Do not make large purchases or open new credit during the build
- Keep your employment and income stable through closing
- Save extra cash for unexpected costs — upgrades, closing cost overruns, and furnishing a new home
- Get multiple lender quotes and compare Loan Estimates side by side
- Ask about extended rate lock options early in the process
- Understand the full buyer process timeline so you know what to expect at each stage
Questions About Financing Your New Build?
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