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    Buyer Guide

    New Construction Deposits Explained: Down Payment, Earnest Money, Escrow & More

    What you pay at contract, what you pay at the design center, what's refundable, and what's actually due at the closing table.

    Written and reviewed by Carla Goddard, Founder & CEO, Vicinity. Last reviewed September 12, 2026.

    Buying a new construction home can involve several different payments before you ever get the keys. That's where things get confusing. You may hear:

    • Reservation fee
    • Earnest money
    • Deposit
    • Builder deposit
    • Escrow
    • Down payment
    • Closing costs

    They can sound like they're all describing the same thing. They're not. The most important thing to understand is this:

    Money you pay before closing is not automatically your down payment. The amount, timing, who holds the money, whether it's refundable and whether it gets credited toward your purchase can depend on your builder, contract and location. So instead of trying to memorize one universal rule, learn what each payment means and then find out exactly how your builder handles it.

    The Simple Version

    Here's the easiest way to think about the money:

    • Reservation fee
    • May temporarily hold a homesite or home for you.
    • Earnest money / builder deposit
    • Shows you're committed to the purchase and is governed by your contract.
    • Escrow
    • Describes where money is being held, not necessarily what the money is for.
    • Down payment
    • The portion of the purchase price you're paying rather than borrowing.
    • Closing costs
    • The costs associated with completing the purchase and mortgage.

    Those categories can overlap in conversation, which is why you should always ask the builder or closing professional to define the specific payment in your contract.

    Go deeper

    New Construction Down Payment FAQs

    When is the down payment due on a new construction home?
    The full down payment is due at closing, not at contract. What you pay up front is earnest money, typically 1% - 5% of the purchase price with a production builder, plus a separate design-center or options deposit, often 25% - 50% of your selected upgrades. Those deposits are credited toward your down payment at closing, so they are a timing question, not an extra cost.
    How much earnest money do builders require?
    Production builders such as Lennar, D.R. Horton, Pulte, and KB Home typically ask 1% - 5% of the base price, often with a $5,000 to $10,000 minimum. Custom and semi-custom builders can ask 5% - 10%. Amounts rise with how much the home is personalized, because a heavily customized house is harder for the builder to resell if you walk.
    Is builder earnest money refundable?
    Usually only during a short contingency window, and sometimes not at all. Many builder contracts make the deposit non-refundable once financing is approved or once construction starts, and options deposits are frequently non-refundable from the moment they are placed. This is the opposite of most resale contracts. Have your own agent or an attorney read the default and deposit-forfeiture sections before you sign.
    Do you make payments during construction?
    On a production builder home with a standard mortgage: no. The builder finances construction and you make your first mortgage payment about 30 - 60 days after closing. On a construction-to-permanent loan for a custom home you do pay, interest-only payments on the amount drawn as each stage is funded, which grows as the build progresses, and you typically pay rent at the same time.
    Do design-center upgrades have to be paid up front?
    Partly. Most builders collect 25% - 50% of the upgrade total when you finalize selections, and it is usually non-refundable because the materials get ordered. The balance rolls into the purchase price and is financed. Note that lenders only finance upgrades up to appraised value, if you over-improve relative to the neighborhood, the excess comes out of pocket at closing.
    Can builder incentives cover your down payment?
    No. Builder incentives are generally applied to closing costs, rate buydowns, or upgrades, lenders do not allow seller or builder contributions to fund the borrower's minimum required down payment. Conventional loans also cap total seller-paid contributions (commonly 3% - 9% depending on down payment and occupancy). Down payment assistance has to come from your own funds, a documented gift, or an eligible DPA program.

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