How to Lower Cash to Close on a New Construction Conventional Loan

The Quick Read: Cash to close is the down payment plus closing costs, minus the deposit you already paid and minus any credits. On a new build, the biggest lever is a builder credit, and it can only pay closing costs, never the down payment. The other levers are gift funds, an earlier deposit, a lower down payment where the program allows it, and shopping the services you get to choose.

What Is Cash to Close, Exactly?

Cash to close is the money you bring to the table. It is not the same thing as closing costs.

Closing costs are the fees to finalize the loan and transfer the home. Cash to close takes those costs, adds the down payment, then subtracts what has already been paid or credited. The federal consumer-finance regulator’s Closing Disclosure explainer treats the two as separate figures. Page 3 of the Closing Disclosure shows Cash to Close, which accounts for the loan amount, your deposit, and any seller or third-party credits.

Think of it as an equation:

• Add: down payment, closing costs, prepaid items and escrow set-up.
• Subtract: the deposit already paid, builder or seller credits, and any lender credits.
• Result: the number you wire.

Every lever below moves one of those terms. Nothing makes the number disappear. It just moves who pays.

Key Terms Defined

Interested party contribution (IPC): Money paid toward your costs by someone with a stake in the sale, such as the builder.

Financing concession: An IPC that pays real closing costs, such as fees and prepaids.

Sales concession: Value given beyond your actual closing costs. It is treated as a price reduction.

Earnest money / deposit: Money paid at contract that is credited against what you owe at closing.

Loan Estimate: The early disclosure that projects your cash to close.

Closing Disclosure: The final disclosure showing the actual figures.

Why Builder Credits Are the Main Lever

Builders are the usual source of closing-cost help on a new build. Under Fannie Mae’s rules on interested party contributions, the builder counts as an interested party, and the contribution is capped by loan-to-value (LTV) band on a principal residence or second home. The cap shrinks as your down payment shrinks.

That table is the agency’s rule. Lenders apply it to the file, and it is subject to lender guidelines and full file review.

Three limits matter more than the percentages.

1. The credit cannot exceed your actual closing costs. Any excess is treated as a sales concession.

2. The credit cannot fund the down payment. It also cannot meet reserve requirements or a minimum borrower contribution.

3. Excess becomes a price cut. Amounts over the limit are deducted from the sales price, and the maximum LTV is recalculated on the lower figure. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.

Here’s the catch. A bigger headline credit is not automatically better. If the builder offers more than the cap, the lender trims it, and your cash to close comes out higher than you were promised.

How the Loan Is Underwritten, Step by Step

On new construction, the order of events matters. Here is how a conventional file moves.

1. Contract and deposit. The sales contract has to disclose every concession. The deposit you pay here is credited against cash to close later. Ask when the deposit becomes nonrefundable, since builders often take an upfront deposit on a home not yet built.

2. Loan Estimate. Your first projection of cash to close. On a long build, the figure can legitimately move. The federal consumer-finance regulator’s integrated disclosure FAQs allow revised disclosures on new construction when settlement is expected more than 60 days after the original estimate, if the original estimate said so.

3. Credit testing. The underwriter runs every credit through the IPC test. It is checked against the cap for your LTV band, compared with your real closing costs, and confirmed not to fund a required contribution.

4. Appraisal. The appraiser needs to see every concession. Fannie Mae’s guidance on adjustments to comparable sales says concession adjustments should approximate the market’s reaction, not run as a strict dollar-for-dollar deduction. New builds still need closed comparable sales, and sales from competing market areas do not count toward the three-comp minimum.

5. Closing Disclosure. Credits must show here, and the cash-to-close figure should match what you were promised. Certain changes to the Closing Disclosure trigger a new three-business-day wait.

Fresh paperwork before each step keeps the file clean. A builder’s incentive letter that differs from the contract is the kind of mismatch that pends a file.

The Levers, One at a Time

Builder credits. They pay closing costs and prepaids. Limit: the IPC cap and your actual costs. Trade-off: some credits are tied to a preferred lender, so compare that lender’s Loan Estimate with an outside one.

Gift funds. Conventional rules are generous here. At 80% LTV or below, no minimum from your own funds is required. On a one-unit principal residence above 80% LTV, the Fannie Mae gift rules also allow the whole amount to be a gift. The donor cannot be affiliated with the builder, developer, real estate agent or other interested party. Gifts are not allowed on investment property. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.

A lower down payment. On a principal residence, the programs we place files with allow 97% LTV (3% down) with a fixed rate when at least one borrower is a first-time buyer, and 95% LTV (5% down) otherwise. A smaller down payment lowers cash to close, though mortgage insurance applies above 80% LTV. It cancels at 80% on request and ends automatically at 78%, subject to the standard conditions. It also drops the builder credit cap to the lowest tier. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.

An earlier deposit. Paying more at contract does not cut total cost. It shrinks what is due at the table.

Shopping what you can choose. Title and the lender are often yours to pick. Lower costs mean the credit covers more of the rest.

Employer assistance and eligible grants. These can fund part of the contribution on a one-unit principal residence, subject to the lender’s matrix.

A builder-funded temporary buydown. This lowers early payments, not cash to close. It also uses concession room that could have offset closing costs. The lender qualifies you at the note rate, so a buydown does not raise your buying power. (Many buyers assume it does.)

Credit, Price Cut or Buydown?

A price cut can beat a credit when the loan amount falls with it, since the lower balance carries through the life of the loan. A credit is cleaner when the cap leaves real room and your closing costs are high. Run both in writing before choosing.

Where the Rule Breaks

Single-closing construction-to-permanent. Fannie Mae’s single-closing overview describes one closing for both the construction phase and the purchase. The loan converts when construction ends. No single construction period may exceed 12 months, and the total may not exceed 18. You must hold title to the lot. A lot you already own can count toward equity, which lowers cash needed. The Eligibility Matrix controls the LTV for these loans, so do not assume the standard purchase leverage applies.

Cash-out on a lot you already own. If the plan involves cash-out, Fannie Mae sets a requirement about how long you must have held title to the lot before the loan can proceed. Single-closing loans are for purchase or limited cash-out only.

Occupancy changes the math. A second home or two- to four-unit principal residence above 80% LTV carries a 5% minimum contribution from your own funds. Investment property gets the lowest concession cap. Occupancy decides leverage and the cap, so state it honestly at application. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.

Credits tied to closing dates. A construction delay can break an incentive. Ask what happens to the credit and to your lock terms if the schedule slips.

Forward commitments. Fees a builder pays a lender to reserve financing before a buyer signs are not counted against your IPC cap under recent agency changes. This is the builder’s cost, not a credit to you.

A Worked Example

Picture a buyer purchasing a new build as a first-time buyer with 3% down on a fixed rate. The builder offers a credit. At that leverage, the cap is the lowest tier: 3% of the price. If the buyer’s actual closing costs run under that, the credit is limited to the costs. If the builder offered more, the excess comes off the price and the LTV is recalculated. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

Now stack the levers. Start with the down payment and closing costs. Subtract the deposit paid at contract. Subtract the builder credit, trimmed to the cap. Subtract any gift toward the down payment. What remains is the Closing Disclosure number.

If the credit was trimmed, expect the final figure to land higher than the sales pitch. That is the number to check before you sign.

What the Lender Looks For

• A sales contract that lists every concession.
• Credits that match the cap and your real costs.
• Gift letters with a donor who is not an interested party.
• A decision score at or above the wholesale floor of 620, and a total ratio within the 50% automated ceiling, subject to lender guidelines.
• A Closing Disclosure that matches the contract.

Common Mistakes

1. Treating the credit as down payment money. It cannot be.

2. Taking verbal promises. Get every credit in the contract.

3. Skipping the re-quote. After incentives are final, request an updated Loan Estimate and compare it line by line to the Closing Disclosure.

4. Ignoring the appraisal. Heavy incentives and upgrades baked into the price affect value.

5. Using a donor tied to the builder or agent.

Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.

Next Step

If you are buying a home and want to see whether conventional loan programs fit your file, Lendmire can help you compare the options and what each one asks of the file. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. CFPB Closing Disclosure explainer

2. Fannie Mae Selling Guide B3-4.1-02, Interested Party Contributions

3. CFPB TILA-RESPA Integrated Disclosure FAQs

4. Fannie Mae Selling Guide B4-1.3-09, Adjustments to Comparable Sales

5. Fannie Mae Selling Guide B3-4.3-04, Personal Gifts

6. Fannie Mae Single-Closing Construction-to-Permanent overview