How Much Cash an FHA New Construction Purchase Takes to Close

The Quick Read: Cash to close on a new construction purchase is the minimum required investment, plus closing costs, prepaids and escrow deposits, minus earnest money already paid and any allowed credits. The minimum investment is 3.5% of the lesser of price or appraised value at a 580 decision score or higher, subject to lender guidelines. Closing costs sit on top of that. A low appraisal raises the total even when the contract price stays the same.

What “Cash to Close” Means on a Builder Purchase

Cash to close is not the down payment. It is the down payment plus everything else due at the table, less what you have already paid.

FHA calls the down payment the “Minimum Required Investment.” HUD’s Handbook 4000.1 glossary defines it as the borrower’s cash or cash equivalent, set at 3.5% of the Adjusted Value of the property. Adjusted Value starts with the lesser of the contract price or the appraised value. Price alone never sets the number.

The same glossary splits “new construction” into three stages. Proposed Construction means no permanent material is in place yet. Under Construction runs from the first permanent material until the home is complete. Existing Less than One Year covers a finished home that has not yet reached its first anniversary. The stage matters because the paperwork and inspections differ at each one.

On the closing paperwork, the federal consumer-finance regulator’s Closing Disclosure explainer says closing costs are separate from the down payment. Page 3 shows the “Cash to Close” line, which is the amount the buyer must actually bring.

The Components, One at a Time

A new construction file carries the same cash buckets as any FHA purchase, plus a few builder-specific items. Here is how each one behaves.

Minimum investment. Across the wholesale programs Lendmire places FHA files with, maximum financing is 96.5%, with a 3.5% minimum investment from a 580 decision score. That is a program floor, and each lender can set its own overlays. HUD’s 500-579 tier, with its 10% minimum investment, is a HUD rule. The network does not reach below 580.

Upfront mortgage insurance. The upfront premium is 1.75% of the base loan. On most files it is financed into the loan balance, so it adds to the loan rather than to cash due. The annual premium is part of the monthly cost, not cash to close. It runs between 0.15% and 0.75% of the balance depending on term, loan amount and LTV.

Closing costs. Lender fees, title, recording, the appraisal and similar third-party charges. These do not count toward the minimum investment. Rolling them into the loan lowers upfront cash, but the federal consumer-finance regulator notes it adds to overall cost through interest.

Prepaids and escrow deposits. Homeowners insurance, the first stretch of property tax and interest from closing to the first payment date. On a newly built home, the tax piece can move around because the lot may have been assessed as land only.

Earnest money and deposits. These are credits, not extra cash. The deposit you posted with the builder shows up as money already paid. Design center and option money paid directly to the builder may count toward acquisition cost, which matters for the appraised-value comparison.

Step by Step: How the File Is Built

Here is the order a builder purchase usually follows, and where cash moves at each step.

1. Contract and deposit. The buyer signs with the builder and posts earnest money. That money is credited at closing. It lowers the cash due, but only because it was already paid.

2. Case number and builder paperwork. The file needs the builder’s certification of plans, specifications and site, plus the warranty of completion form. These are builder documents. If they are missing or stale, the file stalls, and that can push closing dates around.

3. Appraisal. An FHA roster appraiser sets the value. The new home must also meet HUD’s minimum property requirements. The loan base is the lesser of value or price.

4. Inspections and completion items. Depending on the construction stage, the file needs permits, a certificate of occupancy or equivalent inspections. A gap here is a documentation problem, not a cash problem. It still delays the file.

5. Loan Estimate to Closing Disclosure. Compare the two line by line. The Closing Disclosure has to reach the buyer three business days before closing, per the CFPB. Any jump in “Cash to Close” between the two deserves an explanation before closing day.

6. Closing. Funds arrive by wire or cashier’s check. Plan for the exact figure on the final Closing Disclosure, not a round estimate.

Where Builder Money Helps, and Where It Can’t

This is the part buyers get wrong most often. A builder’s incentive can lower closing costs. It cannot fund your down payment.

HUD’s guidance on interested-party contributions says builders and developers count as interested parties. They can contribute up to 6% of the sales price toward origination fees, closing costs, prepaids and the upfront premium. The same page says those contributions may not be used for the minimum investment.

Two rules follow from that.

• Credits above the cap are not ignored. Anything over 6%, or over the actual costs, is treated as an inducement. It reduces the price dollar for dollar when Adjusted Value is computed. The builder’s generosity can quietly shrink the loan base and raise your cash need.
• Lender premium-pricing credits sit outside the 6%, unless the lender is also the seller, agent, builder or developer. A builder-affiliated lender changes that math.

Everything has to be written down. The contributions belong on the sales contract, the HUD addendum and the Closing Disclosure. A verbal promise from a sales office does not lower your cash to close.

Picture a buyer who is offered a large builder credit and assumes it covers the down payment. The credit gets applied to closing costs and prepaids instead, and the minimum investment still has to come from the buyer’s own funds or other allowed sources. The buyer finds that out at the Closing Disclosure stage. That is late.

Which Costs Go Where

Gift funds and down payment assistance follow separate lender rules. Where they are allowed, they can supply the minimum investment, subject to lender guidelines and documentation of the source.

When a Low Appraisal Raises Your Cash

A low appraisal is the biggest swing on a new construction file. The contract price stays the same. The loan base drops to the appraised value. The buyer covers the difference.

Say a home contracts at one price and appraises lower. The 3.5% minimum investment is now figured on the lower value, and the gap between price and value is on the buyer unless the builder re-trades the price. Builders sometimes will, because the next appraisal on the same plan tends to hit the same number.

Appraisal reconsideration is a routine step here, not an emergency. A packet with recent comparable sales and the builder’s cost documentation gives the appraiser something to review. It does not promise a change.

The Edge Cases

The general rule breaks in a few named places.

Construction-to-permanent with land you own. On a one-time-close loan, HUD’s guidance on construction-to-permanent loans lets land equity count toward the minimum investment. Land owned six months or less at case-number assignment counts at the lesser of cost or appraised value. Land owned longer, or received as an acceptable gift, counts at appraised value. The builder has to be a licensed general contractor.

Borrower-paid options. Upgrades paid outside the builder’s base price still count in the acquisition cost for construction-to-permanent loans. They also hit your cash, because options are rarely financed above appraised value.

Warranty requirements. The 10-year protection plan requirement ended for case numbers assigned on or after March 14, 2019, per HUD Mortgagee Letter 2019-05. The builder and buyer warranty of completion form stays. So there is no separate protection-plan cost to budget for.

Condos and manufactured homes. Documentation differs. Condo projects carry their own review items, and certification gaps are a common reason these files stall.

Policy changes. HUD updates its handbook and issues waivers affecting new construction criteria. Ask the lender which version of the guidelines applies to your case number.

Rental or second home. FHA is for a principal residence only. Occupancy decides the leverage, so a home you do not live in does not use this program.

Ways to Lower Cash to Close

Rank these in the order a file usually uses them. Not every lever fits every file, and some can stack.

1. Land equity, where you own the lot and use a one-time-close loan.

2. Gift funds or assistance for the minimum investment, where the lender allows them.

3. Builder credits for closing costs and prepaids, within the 6% cap and documented.

4. Financing the upfront premium, which is standard.

5. A non-occupant co-borrower, which the program allows, with full file review.

What does not work: using builder money for the 3.5%, assuming a deposit is extra cash, or leaving options out of the budget.

Key Terms Defined

Minimum Required Investment: the borrower’s own cash or equivalent, set at 3.5% of Adjusted Value at a 580 decision score or higher.

Adjusted Value: the figure the loan is based on, built from the lesser of price or appraised value.

Interested party: a builder, developer, seller or agent with a stake in the sale, limited to 6% of the price in contributions.

Upfront premium: the 1.75% mortgage insurance charge on the base loan, usually financed.

Cash to Close: the final amount due on the Closing Disclosure after credits and deposits.

Inducement: a seller or builder contribution beyond allowed limits, which reduces the price when value is computed.

Getting Your Real Number

The Loan Estimate gives the first projection. The Closing Disclosure gives the final figure. Ask the builder and the lender these questions before signing:

• Is the credit written into the contract, and where does it apply?
• Which stage of construction is the home in?
• Is the builder’s certification current?
• What happens to the price if the appraisal comes in low?
• Are options and lot premiums inside the appraised value?

County loan limits apply and change every year, so confirm the limit for your county with the lender. Program details are subject to lender guidelines and full file review, and nothing here is a commitment to lend.

Lendmire’s FHA loan programs page lays out how the file is structured. Buyers weighing a larger loan can also read Lendmire’s piece How Much Cash a Jumbo Purchase Takes to Close.

If you are buying a home and want to see whether an FHA loan fits your file, Lendmire can help you compare the options and what each one asks of the file.

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

About Lendmire

Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. HUD Handbook 4000.1 Glossary

2. CFPB Closing Disclosure explainer

3. HUD FHA Q&A: interested-party contributions

4. HUD Mortgagee Letter 2019-08 (construction-to-permanent)

5. HUD Mortgagee Letter 2019-05