Want to "back out" of new home purchase due to medical/financial reasons. Is this possible? If so, what are the consequences and steps?

You can back out within the 20 days of due diligence. After that you will lose your earnest deposit.

Go read your contract very carefully and probably a good idea to take it to a lawyer. These contracts are usually written by the builders and are thus often heavily slanted in their favor but see what a lawyer says. The probably answer is yes you can get out but it will cost you the $3500 deposit as a minimum and the builder may have recourse to sue you for more to cover his expenses. However, since this is a VA loan, if you explain this all to the VA they may turn down your loan and assuming the contract has a financing contingency you may not lose so much, but I suggest you first off go to a good real estate lawyer and see what they say.

The issue is that you already signed a purchase agreement. You need to consult a lawyer on this.

since you are using a VA loan you need to let them know you are not going to be able to live in this house with this condition, you will lose your earnest money

You will lose your $3500.00 for sure, and the builder can actually sue you for expenses incurred by him due to your contract. Such as any additional items you asked for that wouldn't have been in the contract had someone else bought it. They can actually sue to force you to buy, but most don't & I think they would lose in your case due to your health. So plan on losing the earnest money & maybe more if you added "extras" like granite etc. They may even make you make the payments till they re-sell.

Your deposit is at risk. If you have a construction loan (that's converted to a permanent loan when completed) you may have a problem. If effect you already committed to a loan. All you can do is talk to the builder. If he can sell the home to someone else you may be able to get out of it.

You need to look at your contract. In a typical situation, you lose your $3,500 and that's the end of it, but nobody here knows what is in your particular contract.

Most importantly, this is why you have an agent and/or lawyer on the deal. You ask them these questions and you have a real, not guesses, answer within minutes.

You might not get your earnest money back because they may have turned away other buyers.

You'll lose your deposit.

You will loose your deposit.

Talk to the builders.