How Much Down Payment Do I Need to Build a House?

Construction loans generally require a larger down payment than a purchase mortgage, and requirements vary by lender and program. The good news is that if you already own your lot, the equity in that land frequently counts toward it.

Why more is required

The lender is financing something that doesn't exist yet, and carrying that risk through the whole build. More borrower equity means more incentive for the project to finish. See why construction lending is different.

How land equity works

If you own your lot free and clear, its appraised value typically counts as equity in the project. For some buyers who bought land years ago, that alone can satisfy a substantial part of the down payment requirement. If you still owe on a lot loan, only your equity counts, not the full value.

What the loan amount is based on

Construction lenders usually lend against the lower of total project cost or the appraised value of the completed home. This matters: if you're building something unusual for the area, or over-improving relative to the neighborhood, the appraisal can come in below cost and increase the cash you need to bring. Ask your lender how they handle this before design gets far.

Other cash you'll need

Down payment isn't the whole out-of-pocket picture. Budget also for:

• Closing costs, which can be significant
• Soft costs due before the loan funds. See soft costs
• Design deposits
• A contingency, if your lender expects it from your funds rather than the loan. See contingency
• Reserves, which many lenders require you to document

Low and no down payment programs

They exist for home purchases, and they mostly do not work the way people hope for ground-up custom construction. Ask a construction lender specifically before you count on one. See building with no money down.

Requirements vary by lender and change over time. Get current numbers from a construction lender rather than from an article.