New Construction Home Loans (2026): How to Finance a Newly Built Home

Buying a new home from a builder vs. building your own: what's the difference?

Most buyers of new homes buy from a production or spec builder: the builder owns the land, builds the house and sells it to you. You finance it with a normal purchase mortgage that closes when the home is complete and has a certificate of occupancy. If the home isn't finished yet, the builder's contract usually sets a deposit and an estimated completion date, and your rate lock has to cover the wait.

Building your own (a custom home on land you own or are buying) works differently. Because there's no finished house to secure a regular mortgage, lenders use a construction loan that pays the builder in stages (draws) as work is inspected, then either converts to a permanent mortgage or is paid off by one.

Construction-to-permanent (one-time close) vs. two-time close

One-time close reduces paperwork and protects you if rates or your finances change during the build. Two-time close can offer more lender choice and lets you shop the permanent mortgage after the home is done.

Which loan programs work for new construction?

• FHA: 3.5% down with a 580+ credit score. For homes less than a year old, HUD requires builder documentation such as the Builder's Certification (form HUD-92541) and, in many cases, a warranty (form HUD-92544) or a HUD-accepted 10-year protection plan; otherwise financing can be limited to 90% loan-to-value. FHA also has a one-time close construction option.
• VA: 0% down for eligible veterans and service members with no monthly mortgage insurance. The builder must have a VA builder ID and provide a one-year warranty (VA Form 26-1859) or an acceptable 10-year protection plan. A funding fee applies (2.15% on first use with under 5% down) unless exempt.
• USDA: 0% down for moderate-income buyers in eligible areas (check the address on the USDA eligibility map). New construction is eligible, and USDA's guaranteed program allows a single-close construction-to-permanent loan through approved lenders.
• Conventional: 3%–5% down for most buyers; Fannie Mae and Freddie Mac both allow single-closing construction-to-permanent loans. Loans above your county's conforming limit become jumbo loans.

How do builder incentives and rate buydowns work?

Builders commonly offer closing-cost credits, free upgrades or a mortgage rate buydown instead of cutting the price. A permanent buydown pays discount points to lower your rate for the whole loan; a temporary buydown (like a 2-1) lowers the payment by 2 percentage points in year one and 1 point in year two, after which you pay the full note rate.

Every program caps what the seller can contribute: Fannie Mae allows 3% of the price with under 10% down, 6% with 10%–25% down and 9% with more than 25% down (2% on investment properties); FHA and USDA allow 6%; VA caps seller concessions at 4% (normal closing costs don't count toward it). Incentives above the cap reduce the price used for your loan.

Should I use the builder's preferred lender or shop my own?

Builders often tie incentives to their affiliated or preferred lender. That's legal, and the incentive can be worth it, but federal law (RESPA) requires disclosure of affiliated business relationships and you can't be required to use a particular lender as a condition of buying. Get a Loan Estimate from the builder's lender and at least one outside lender, and compare the rate, points and total cash to close with and without the incentive.

Deposits, upgrades and appraisal

• Earnest money/deposits on new builds are set by the builder's contract and can be larger than on resale homes, especially for to-be-built homes or custom upgrades. Ask whether deposits are refundable if your financing falls through.
• Upgrades paid in cash before closing are usually non-refundable; upgrades rolled into the price must be supported by the appraisal.
• New homes are appraised like any other. If the appraisal comes in below the contract price, you may need to pay the difference, renegotiate or use the program's appraisal rules to walk away.
• Order an independent home inspection even on a brand-new home, ideally before drywall and at final walkthrough.

How long does new construction financing take?

A completed spec home closes on a normal 30–45 day timeline. Homes under construction depend on the build; many buyers get pre-approved early, then lock a rate 30–90 days before completion (longer locks usually cost more or require a fee). Custom builds with a construction loan commonly run 6–12 months or longer from closing to move-in.