On a new construction home, the buyer pays most of the closing costs, generally 2% to 5% of the purchase price, while the builder commonly picks up a narrower set of items like transfer taxes and, in many cases, buyer-agent compensation. The split is not fixed. It shifts with your contract, your loan program, and the local market. Builders often sweeten the deal with closing cost credits, especially when you finance through their preferred lender, and those credits can run into five figures.
What the Buyer Pays
Almost everything tied to your loan lands on your side of the settlement statement. Loan origination fees typically run 0.5% to 1% of the loan amount. You also pay prepaid interest from the closing date through the start of your first full mortgage cycle, plus a credit report fee and the lender’s title insurance policy. If you put down less than 20%, the first premium of private mortgage insurance is collected at closing.1Consumer Financial Protection Bureau. What Is Private Mortgage Insurance?
The appraisal on a new build generally costs $450 to $800. You also seed an escrow account with several months of property taxes and homeowners insurance so the lender has a reserve from day one. These charges are not really negotiable: they are conditions of loan approval, and no builder concession makes them go away.
What the Builder Typically Covers
Builders have traditionally paid real estate agent commissions. After the 2024 NAR settlement, buyers are generally responsible for negotiating and compensating their own agent, but many builders still offer buyer-agent compensation as a sales incentive. Whether a builder covers it, and at what percentage, varies by builder and market.
Builders usually pay the transfer taxes that local jurisdictions charge to record the change of ownership. In some contracts the builder also pays for the owner’s title insurance policy, though in new construction they frequently try to shift that cost to the buyer. Whatever the deal, it has to be written into the purchase agreement and match the final Closing Disclosure line for line.
New Construction Fees You Won’t See on a Resale
Several charges exist only because the home is new. Utility hookup fees connect the property to local water, sewer, and electrical infrastructure, and they vary widely by municipality from a few hundred dollars to a few thousand. Beyond hookups, expect to see some combination of the following:
- HOA working capital contribution, often two to three months of regular dues, so the association has operating cash from the start.
- Builder administrative or “redline” fees, typically $500 to $1,000, covering the builder’s internal costs of processing the sale.
- Municipal impact fees for roads, parks, and schools. The builder usually pays these during construction, but the cost is baked into the home’s base price.
- Environmental and boundary surveys confirming property lines and soil stability, generally required before closing.
- Phase inspections at foundation, pre-drywall, and final walkthrough. Each one typically runs $150 to $200 and is paid by the buyer. Pre-drywall is your only chance to verify wiring, plumbing, ductwork, and framing before the walls are sealed.
These sit on top of the standard title search, recording fees, and settlement agent charges that appear on any real estate closing.
Builder Credits and the Preferred Lender
Large builders often partner with an affiliated or preferred lender and offer substantial closing cost credits — sometimes $5,000 to $20,000 — if you finance through that company. The credit shows up on your settlement statement as a lender or seller credit, reducing the cash you bring to closing. It can cover the appraisal, credit report, origination fees, and even discount points to buy down your interest rate.
Federal rules require the builder to give you an Affiliated Business Arrangement Disclosure describing the ownership or financial relationship with the lender, along with an estimated range of charges that lender will assess.2Consumer Financial Protection Bureau. 1024.15 Affiliated Business Arrangements You are not required to use the preferred lender, but choosing an outside lender usually means forfeiting the builder’s credit entirely.
Before accepting, compare the total cost of the loan against quotes from at least one outside lender. A $10,000 credit means little if the preferred lender’s rate is a quarter-point higher over 30 years. You must receive a Closing Disclosure at least three business days before settlement, which gives you time to verify every charge and confirm the credits are applied correctly.3Consumer Financial Protection Bureau. What Should I Do if I Do Not Get a Closing Disclosure Three Days Before My Mortgage Closing?
Loan Program Caps on Builder Contributions
Even a generous builder cannot cover unlimited closing costs. Your loan program sets a ceiling, and anything above it gets treated as a sales concession and subtracted from the sale price for underwriting purposes, which can throw off the appraisal.
For conventional loans backed by Fannie Mae, the cap depends on your down payment: 3% of the sale price or appraised value (whichever is lower) when your down payment is under 10%, 6% between 10% and 24.99% down, and 9% at 25% or more down.4Fannie Mae. Interested Party Contributions (IPCs)
FHA loans allow seller or builder contributions up to 6% of the sale price regardless of down payment. VA loans draw a sharper line: there is no limit on a builder’s credits toward actual closing costs, but total seller concessions, which include things like paying off the buyer’s debts or prepaying hazard insurance, are capped at 4% of the home’s reasonable value.5U.S. Department of Veterans Affairs. VA Funding Fee and Loan Closing Costs
How Market Conditions Change the Split
The market plays a bigger role than most buyers expect. In a buyer’s market with slow sales, builders routinely offer credits of 2% to 5% of the purchase price applied toward your closing obligations. The credit moves inventory without cutting the listed sale price, which protects appraisal values across the community.
Flip the market, and the dynamic flips with it. When demand is high, builders have little reason to offer concessions, and waiving requests for credits may be what it takes to secure the home.
Construction stage matters too. A finished spec home costs the builder money every day it sits vacant in taxes, insurance, and loan interest, so builders tend to be more flexible with credits on completed inventory. A to-be-built home where ground hasn’t broken gives you less leverage. Sales teams adjust incentives weekly against inventory and quarterly sales goals, so two identical homes in the same neighborhood can carry very different closing arrangements depending on when the contracts were signed.
Rate Lock Extensions During Construction Delays
A standard rate lock lasts 30 to 60 days, which works for a resale closing but not for a home that is months from completion. If the lock expires before the home is ready, extending it typically costs 0.25% to 1% of the loan amount. On a $400,000 mortgage, that is $1,000 to $4,000 of unplanned expense.
Two options can take the edge off. Some lenders offer extended locks of 90 to 120 days or longer at a slightly higher upfront cost. Others offer a float-down option that locks your rate while letting you capture a lower rate if the market drops during the lock period.6Freddie Mac. Why You Should Consider a Rate Lock-In Terms vary, so ask about both before locking on a home that is still being built.
One Closing or Two?
If you are buying a completed spec home with a standard mortgage, you close once and pay one set of closing costs. If you are building from the ground up, the loan structure decides whether you pay those costs once or twice.
A single-close construction-to-permanent loan combines the construction financing and the permanent mortgage into one loan with one closing. The loan automatically converts when the home is finished, and you pay closing costs only once. For most buyers this is the cheaper route.
A two-time-close structure uses separate loans for the construction phase and the permanent mortgage. You close on the construction loan, then close again on a new mortgage when the home is done. Each closing brings its own origination, appraisal, title, and recording fees, so total out-of-pocket closing costs can roughly double. The upside is flexibility: you can shop for the best permanent rate after construction wraps rather than locking months ahead.
Title Insurance: Your Choice When You’re Paying
Who pays for the owner’s title insurance policy is a frequent point of friction. In resale, the seller often provides it. Builders frequently push the cost to the buyer. If you are paying, you choose the title company.
Under the Real Estate Settlement Procedures Act, a seller cannot require you to buy title insurance from a particular company as a condition of the sale when you are paying for the policy. A builder who violates the rule is liable to you for three times the amount charged for the insurance.7Office of the Law Revision Counsel. 12 U.S. Code 2608 – Title Companies; Liability of Seller Ask the title company about a simultaneous-issue discount if you are buying the owner’s and lender’s policies together.
Plan for the Tax Reassessment
One cost arrives months after closing and catches many new construction buyers off guard. During construction, the property is typically assessed on land value alone. Once the home is finished and the certificate of occupancy issues, the local tax authority reassesses to include the full structure.
If closing happened before the reassessment, the escrow calculations your lender used were based on the land-only figure. When the updated assessment comes in, the lender adjusts the escrow payment, often creating a shortage that raises your monthly mortgage payment. Some jurisdictions also send a supplemental bill for the current fiscal year. Ask your lender or agent what the projected post-build tax figure looks like, and build the higher number into your budget from the start.