The Quick Read: Sale equity is not a special loan feature. It is the cash you net from selling your current home, and a conventional lender treats it as an asset that funds your down payment, closing costs, and reserves on the new build. The lender has to document that cash, and how far along your sale is decides how your old payment counts against you. Sell first, or close on both homes together, and the file stays simple.
What “Sale Equity” Actually Means to a Lender
Underwriters do not use the phrase “sale equity.” They see net sale proceeds: the sales price, minus selling costs, minus every lien on the old home. Equity on paper is not the same thing. If your home is worth a lot more than you owe, that gap shrinks once commissions, payoffs, and prorations come out.
Conventional payment estimate
The starting figures are an example price at the first-time buyer’s minimum down payment. Replace them with yours.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a conventional loan quote.
Estimate seeded at the low end of Fannie Mae’s published range (0.58%–1.86% a year); the insurer prices the actual premium on the score and the leverage. Applies only above 80% loan-to-value.
Illustrative starting assumptions: a $350,000 price, the first-time buyer’s minimum down payment, a thirty-year term at the current Freddie Mac benchmark, mortgage insurance at the low end of Fannie Mae’s published range, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a conventional loan quote; your rate is set by the lender at lock. The mortgage insurance figure is an editable estimate seeded from Fannie Mae’s published typical range, not a premium quote; the insurer prices the actual premium, and the cancellation month assumes scheduled payments with no extra principal and no change in value. Taxes, insurance and dues are editable estimates; closing costs are not included. Conforming loan limits apply by county. Licensed in sixteen states for consumer mortgages.
That difference trips up a lot of move-up buyers. The number that matters is what lands in your account, or on the settlement statement, after the old sale closes.
Here is how the pieces break down in plain terms:
| Piece | What it does to your cash |
|---|---|
| Sales price | Starting point |
| Selling costs | Subtract |
| Mortgage and other liens | Subtract |
| Net proceeds | What funds the new build |
You then spend those net proceeds on three things: the down payment, closing costs, and reserves (cash left over after closing). Builder credits can help with some closing costs. They cannot replace the down payment, as covered below.
Step by Step: How the Loan Is Underwritten
Short version: the lender needs proof of the cash and a clear picture of your monthly debts. Both depend on what stage the old home is in.
1. Contract on the new build. The builder’s sales contract is your purchase contract. Whether it allows a home-sale contingency is a negotiation with the builder, and the builder’s terms control.
2. Pin down the old home’s status. It is either not listed, listed, or under an executed contract or closed. The lender’s paperwork follows that status.
3. Decide if you need the proceeds to close. If the new loan needs that cash for the down payment and closing costs, the old home’s settlement statement is required at or before the new settlement.
4. Run the debt-to-income math. Debt-to-income (DTI) compares your monthly debts to your monthly income. The old payment either counts or drops out.
5. Appraise and verify completion. The new build is appraised as completed, and the lender confirms it is finished.
6. Review disclosures and close. You receive your closing paperwork ahead of the signing.
When the old home is listed but not sold
The Fannie Mae Selling Guide on anticipated sales proceeds lets a lender qualify you on expected proceeds from a listed home. The lender must still document the proceeds you actually receive.
If a price is established, net proceeds are the price minus selling costs and liens. If no price is set, the formula uses 90% of the listing price minus all liens. That 10% haircut must move with market conditions. It tells you how the lender thinks: expect less than the list price implies.
A photocopy of a listing agreement or sales contract does not prove proceeds. A settlement statement does.
When the old home is under contract
An executed contract changes the debt side. Across the wholesale programs I place files with, the old payment stays in your ratios unless the file shows two things: an executed sales contract and proof that any buyer financing contingency has cleared. Fannie Mae’s rule on other real estate owned says the same. Without both, you qualify with both housing payments, the old one and the new one.
Under contract is not the same as cleared. A buyer who can still walk over financing leaves your old payment on the books.
The Four Ways to Sequence the Sale and the Build
The cleanest path is selling first. Every other path adds risk, and the risk grows with the length of the build.
| Path | How it works | Best for | Main risk |
|---|---|---|---|
| Sell first | Old home closes, cash sits in your account | Buyers who can rent or stay put briefly | Housing gap |
| Same-time closings | Both settle together, using the settlement statement | Buyers with a firm build date | Timeline slips |
| Sale contingency | New contract depends on the old sale | Buyers with limited cash | Builders may resist |
| Buy first with a bridge loan | Short-term loan covers the gap | Buyers with strong income | Debt counts in DTI |
A bridge or swing loan lets you close on the new home before the old one sells. Fannie Mae treats it as a contingent liability that goes into your monthly debts, unless the file has an executed sales contract and confirmation that financing contingencies have cleared. Do not assume a bridge loan is invisible to underwriting.
Where the cash sits after you sell
Say you sell months before the build finishes. Proceeds from a home already sold must be in a depository account, such as checking or savings. Once there, they count as ordinary assets for the down payment, closing costs, and reserves. Cash sitting in the bank is easier to document than cash you are still waiting on.
The Loan Limits That Frame the Plan
For a one-unit principal residence on a conventional purchase, the wholesale programs I work with allow 97% loan-to-value (LTV) when at least one borrower is a first-time buyer, meaning no ownership interest in a residence in the previous three years. That is a 3% down payment, on a fixed-rate loan. Everyone else gets up to 95% LTV, or 5% down. LTV is the loan amount divided by the lesser of price or appraised value. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Mortgage insurance is required above 80% LTV. You can request cancellation at 80% of the original value with good payment history, no second liens, and no decline in value. The servicer must end it automatically at 78%. Published typical annual premiums run 0.58% to 1.86% of the balance, which is a range and not a quote. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
On credit, the wholesale conventional programs start at a 620 decision score, and the automated finding governs most files, with a total ratio ceiling of 50%. Program details are subject to lender guidelines and full file review.
Proceeds do not need to cover a full 20%. A big net-proceeds check may let you put down more and shrink or drop mortgage insurance. That is a choice, not a requirement.
Builder Credits: Helpful, Capped, and Not a Down Payment
Builder-paid closing help counts as an interested party contribution (IPC), which is money from someone with a stake in the sale. Builders are interested parties. Three rules matter.
First, IPCs cannot fund your down payment, reserves, or minimum borrower contribution. Your sale equity has to cover those.
Second, the amount is capped, measured against the lower of the sales price or the appraised value. Fannie Mae’s Interested Party Contributions rule sets those caps as percentages of price on a principal residence. They step up as your down payment grows. Smaller down payment, smaller cap.
Third, anything over the cap is treated as a sales concession. It is subtracted from the sales price and LTV is recalculated, which can change your eligibility and your mortgage insurance.
Furniture, decorator allowances, and moving costs from a builder count as sales concessions too. Undisclosed credits, like a rebate that never hits the settlement statement, can make the loan ineligible for sale to Fannie Mae. Everything goes on the paperwork.
Where the General Rule Breaks
Most of this assumes you buy a finished or nearly finished home from a builder. Several edge cases change the answer.
Construction-to-permanent loans. If the builder builds on a lot you own, a different structure applies. Fannie Mae’s single-closing construction-to-permanent matrix says those loans are delivered only after construction is complete and the loan converts. Cash-out refinance is not eligible for this structure, so you cannot treat it as a way to pull equity out of your old home. Time limits on the construction period apply, so confirm them with your loan officer against the current guide.
Keeping the old home. If you keep it as a second home, its full housing payment counts in your recurring debts. If it becomes a rental, rental-income rules apply instead. Occupancy also changes leverage and concession caps. The new build must be your principal residence for the favorable DTI treatment above.
Employer relocation. If your employer buys out the old home or pays off the mortgage, the lender needs the executed buy-out agreement as documentation.
1031 exchange. Fannie Mae accepts like-kind exchange proceeds when properly documented. The IRS says like-kind treatment applies to real property held for business or investment, not personal use (IRS Publication 544). For your own home, this generally does not fit. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Prorated tax credits. In places where taxes are paid in arrears, a seller-provided prorated tax credit is an allowed item. It cannot be counted when deciding whether you have enough funds to close.
Completion, Disclosures, and Rate-Lock Timing
New builds move. Weather, permits, and supply problems push dates.
Two parts of the loan care about that. First, the lender must verify the home is complete before the loan is sold to Fannie Mae, usually with an appraisal update and completion report, or an attestation-letter alternative. Small items, like landscaping delayed by weather, can be postponed up to 180 days after the note date if they are in the sales contract, delayed for a valid reason, and do not block the occupancy permit. A completion escrow applies.
Second, your financing timeline and the builder’s closing date are separate commitments. Any pricing commitment from a lender has its own expiration, and extending one typically costs money. A lender may change locked terms only in limited circumstances, per the CFPB’s Closing Disclosure explainer. The same page notes you get your Closing Disclosure three business days before closing. If a builder delay moves settlement, revised disclosures may follow.
Ask the builder early how firm the completion date is, and size your lock around the realistic date, not the sales pitch.
A Worked Example Without the Dollar Signs
Picture a move-up buyer who owns a home with a solid cushion of equity. The new build is priced well above what they owe on the old house. They plan to put 10% down and ask the builder for closing help. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Here is how the lender walks through it:
1. Start with the expected sales price of the old home.
2. Subtract commissions, payoffs, and prorations to get net proceeds.
3. Compare net proceeds to 10% of the new price plus estimated closing costs plus reserves.
4. Check whether the builder credit stays inside the cap for a 10% down payment. Credits cannot be counted toward the 10%.
5. If the sale closes first, the cash sits in a bank account and the old payment is gone. If it has not closed, the lender asks for the executed contract and cleared contingency to drop the old payment. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Now stress it. If the old home sells for less than expected, net proceeds shrink and so does cash to close. A buyer who planned the down payment to the last dollar has to find the gap or reduce it. A buyer who built in a cushion barely notices. This is why lenders apply the 90% haircut when no price exists.
Common Mistakes
- Counting proceeds the day you list. Anticipated proceeds can support qualifying, but the actual settlement statement still has to show the cash.
- Assuming the old payment vanishes at “under contract.” It vanishes when the contract is executed and financing contingencies have cleared.
- Leaning on builder credits for the down payment. They cannot cover it.
- Ignoring the lock calendar. The lock can expire before the build finishes.
- Confusing equity with cash-out refinance. This article is about sale proceeds on a purchase. Cash-out refinance is a different loan with its own limits.
Key Terms Defined
Net proceeds: the cash you receive from selling your home after selling costs and all liens are paid.
Debt-to-income ratio (DTI): your total monthly debts divided by your gross monthly income.
Interested party contribution (IPC): money toward your closing costs from someone with a stake in the sale, such as a builder.
Home-sale contingency: a clause that makes the new purchase depend on selling your current home.
Bridge loan: a short-term loan that lets you close on a new home before the old one sells.
Reserves: cash left in your accounts after closing, which some files must show.
What Your Decision Looks Like in Practice
Start with the old sale, not the build. Ask three questions: How much will I net, with a conservative estimate? Can I wait for the sale to close before the build does? How long will the lock need to last?
If the answers are comfortable, a conventional loan fits cleanly. If the cushion is thin or the build date is far out, the sale contingency or bridge route may fit better, though a bridge adds debt and builders vary on contingencies. Lendmire’s piece Can You Use an Asset-Based Mortgage to Buy a New Mexico Home for Your Parents? shows how a different asset-led structure is documented, which helps if your cash will not come only from a sale.
Run these numbers before you sign the builder’s contract, not after. Details of the conventional loan programs Lendmire arranges through wholesale lenders are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
If you are buying a home and want to see whether a conventional loan fits your file, Lendmire can help you compare the options and what each one asks of the file.
Frequently Asked Questions
Do I have to sell my old home before I can get a conventional loan on a new build?
No. A lender can qualify you on anticipated proceeds while the home is listed. The catch is documentation: if you need those proceeds to close, the old home’s settlement statement is required at or before the new settlement. So the sale effectively has to close first or at the same time.
Can I count sale proceeds I have not received yet?
For qualifying, yes, in the form of anticipated proceeds, using the sale price minus costs and liens, or 90% of the list price minus liens when no price is set. For closing, no. The lender needs proof of the cash actually received, and a copy of a listing agreement or sales contract does not count.
What happens to my old mortgage payment in underwriting?
It counts unless the file has an executed sales contract and evidence that any buyer financing contingency has cleared. If the old home is pending sale but title will not transfer before your new loan closes, both housing payments are used to qualify without that documentation.
Can the builder’s credits cover my down payment?
No. Interested party contributions cannot fund the down payment, reserves, or minimum borrower contribution. They can help with closing costs and prepaids, up to a cap tied to your down payment level. Anything above the cap is treated as a sales concession and lowers the price used for LTV.
What if the build is delayed past my closing timeline?
The financing timeline and the builder’s closing date are separate commitments, so a delay can leave you needing an extension, which typically costs money. Ask the builder how firm the date is before committing to a financing timeline. Revised disclosures may also follow if settlement moves.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Selling Guide B3-4.3-10, Anticipated Sales Proceeds
2. Fannie Mae Selling Guide B3-6-06, Qualifying Impact of Other Real Estate Owned
3. Fannie Mae Selling Guide B3-4.1-02, Interested Party Contributions
4. Fannie Mae Construction-to-Permanent Financing: Single-Closing
6. CFPB, Closing Disclosure explainer
This article is part of Lendmire’s conventional loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Does New Construction Need a Full Appraisal on a Conventional Loan? · Can a Retiree Get a Conventional Loan Without Employment Income? · Can You Buy a 2-4 Unit Primary Home With a Conventional Loan?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.