When embarking on the journey of purchasing a new construction home, understanding the financial aspects, particularly the timing of down payments, is crucial. There are several financing options available, each with its own requirements and considerations.

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Builder Financing

Builder financing is a common approach when purchasing production homes from major builders. A deposit, typically 5%-10%, is required at the contract signing, functioning as earnest money. This builder deposit is higher than what is usually seen in resale home transactions. Additional payments may be necessary during construction for custom upgrades and changes. Once construction is complete, buyers secure a traditional mortgage with a down payment of 0%-20% due at closing.

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New Construction Loans

Opting for a new construction loan is common when building a custom home or working with a smaller builder. A down payment of 20%-30% is typically required at the contract signing to initiate the construction process. Interest-only payments are made on the loan during construction at a variable rate. Upon completion, a permanent mortgage is obtained, and the down payment is due at the closing.

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Combination Loans

Combination loans provide a streamlined approach, requiring a down payment of 20%-30% at the contract signing for the construction phase. This loan seamlessly transitions into a permanent mortgage after construction, with the down payment due at the closing. This approach simplifies the process by involving only one set of closing costs.

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Builder Deposit and Down Payment Distinctions

It’s important to note that the builder deposit, serving as earnest money, is separate from the down payment. Typically, 5%-10% of the base price, or higher for cash purchases, the builder deposit is paid at the contract signing. Down payment amounts vary based on factors like credit history, loan type, and buyer qualifications. Loans such as VA and USDA may allow for no down payment, while conventional loans typically require 3%-20%.

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Closing on a New Construction Home 

Closing on a new construction home marks the final step in the home buying process. It occurs upon completion of construction, with an estimated completion date provided at the signing of the purchase agreement. Property taxes are assessed based on the home’s value, paid monthly through the mortgage. Closing costs for new construction homes are typically the responsibility of the homebuyer and cover various fees associated with the mortgage loan process.

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Choosing the Right Financing Approach

When considering the financial aspects of purchasing a new construction home, it’s essential to evaluate and choose the right financing approach based on your specific needs and circumstances. Understanding the differences between builder financing, new construction loans, and combination loans allows you to make an informed decision that aligns with your financial goals and preferences.

Negotiating Builder Deposits

In the realm of builder financing, there may be opportunities to negotiate the builder deposit, also known as earnest money. While builders assume greater risks in financing the construction, buyers can explore the possibility of adjusting the upfront deposit. However, it’s crucial to recognize that builders have limitations, and negotiations should be approached with an understanding of the risks involved.

Strategies for Managing Construction Costs

For those opting for new construction loans or combination loans, managing construction costs becomes a significant consideration. Negotiating rates or simplifying the project scope can impact the overall amount needed to borrow. Additionally, buyers can explore strategies such as planning to undertake certain finishing work themselves, potentially saving on costs without compromising the quality of the home.

Exploring Builder Incentives

Many builders offer incentives, particularly when working with their in-house lenders. Preferred lenders associated with the builder may provide competitive financing options and potentially reduce some fees. Exploring these incentives and understanding the benefits they offer can contribute to a more cost-effective and streamlined home buying process.

Preparing for Property Taxes

Understanding how property taxes are assessed on new construction homes is vital for long-term financial planning. Property taxes vary by locality and are calculated based on the assessed value of the home. Buyers should be aware that property taxes can fluctuate annually based on changes in the home’s assessed value or adjustments made by local governments. Discussing these potential fluctuations with a New Home Sales Consultant can provide valuable insights.

Closing Costs and Transparent Communication

Clear communication about closing costs is crucial throughout the home buying process. Buyers should be aware that closing costs for new construction homes are typically their responsibility and cover expenses such as loan processing fees, title company fees, and insurance costs. Transparent communication with the builder, lender, and other stakeholders ensures that buyers are well-informed and prepared for these financial considerations.


With a wealth of experience, Powell Contracting stands out for its expertise in constructing diverse and challenging homes. Our seasoned team is well-equipped to handle the unique requirements and complexities associated with different projects, ensuring that each home is built to the highest standards.

Transparent communication is a cornerstone of our approach. Throughout the entire construction process, we prioritize keeping our clients informed at every step. From negotiations involving builder deposits to understanding closing costs, we believe in fostering a trusting and collaborative relationship through clear and open communication.

If you’re seeking a skilled team of home builders in North Vancouver, look no further. Contact Powell Contracting today for a free quote, and let us begin the journey of building your dream.

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