Plan for the overrun before you close, because the loan usually cannot grow after.
Cost overruns are one of the most common worries for people building a home. Ken Clark Jr., Certified Mortgage Advisor with PRMG, explains who typically pays when costs rise, how change orders and delays work, and what you can do up front to protect your budget.
Short answer: it depends on the contract. Under the fixed-price, turnkey contract that PRMG one-time close programs commonly require, the builder generally absorbs cost increases on the agreed scope. Anything outside that scope, such as upgrades you add later, is typically on you.
This is why these programs ask for a fixed-price contract instead of a cost-plus arrangement. With cost-plus, rising lumber, labor, or concrete costs flow straight to the homeowner. With fixed-price, the builder prices the risk in up front. Your job is to make sure the contract is complete: site work, utilities, driveway, permits, and finishes should all be spelled out. See construction loan requirements.
Short answer: generally no. On a conventional one-time close loan, the loan amount cannot increase after closing. Government one-time close programs work the same way in practice: the loan is sized to the contract and appraisal at closing.
Once the loan closes, the construction funds are set. If costs rise beyond that amount, the difference has to come from the builder (under the contract) or from you. There is no simple way to add money to the loan midstream. That is why the budget review before closing matters so much, and why we model land cost or payoff, the contract price, and closing costs together up front. See conventional construction loans.
Short answer: a contingency is a line in the budget set aside for surprises. Whether one is built into the loan, and how large, depends on the program and the builder's contract. Even when the loan does not include one, keeping your own cash cushion is smart.
On investor ground-up projects, a contingency of about 10 percent is common. On owner-occupied one-time close loans, the fixed-price contract does much of the same job, but site surprises (rock, soil, well depth, utility runs) can still create disputes about what was included. Ask your builder how they price unknowns and put allowances in writing.
Short answer: a change order is a written change to the plans or contract after closing. If you ask for it (a bigger island, upgraded flooring, an extra window), expect to pay the builder directly, because the loan cannot grow.
Change orders that alter the structure or square footage can also affect the appraisal and the completion inspection, so tell us before you sign one. Small cosmetic swaps within the same price are usually simpler. The final inspection and completion report confirm the home was built as planned, so undocumented changes can slow the conversion to your permanent loan.
Short answer: delays can push the project past the allowed construction term, which may mean extension fees, updated documents, or changes to terms, depending on the program.
Government one-time close programs commonly expect completion within about 9 months, with up to 12 months case by case. Conventional one-time close terms of 6, 9, or 12 months are common, and Fannie Mae's single-closing rules cap any single construction period at 12 months and the total at 18 months. On FHA and VA, the builder typically pays the interim interest, so a long delay costs the builder too. On conventional loans, you pay interest only on funds drawn, and taxes keep coming due. See the draw process.
Short answer: draws typically stop until the situation is sorted out. Because funds are released only for work in place and backed by lien waivers, the undrawn money is still there, but finishing usually requires a replacement builder who completes builder registration and a revised plan.
This is where the up-front protections pay off: the builder registration documentation review (license, insurance, financials, experience, references), builder's risk insurance, work-in-place draws, and lien waivers. None of that is a guarantee, but it reduces the odds of paying for work that was not done. If something goes sideways, call us early. The sooner we know, the more options there usually are. See builder registration.
Educational illustration only. Not an actual client, loan offer, or commitment to lend.
A buyer in Placer County closes a conventional one-time close loan with a $520,000 fixed-price contract. Three months in, they decide to upgrade the kitchen and add a covered patio, priced by the builder at $38,000. The loan cannot increase after closing, so the buyer pays the $38,000 directly to the builder under a signed change order, and we note the change so the completion inspection matches. Separately, the builder hits unexpected rock during foundation work. Because site work was priced into the fixed contract, the builder absorbs that cost.
Where available: PRMG construction programs are available in every state where PRMG is licensed, which is all states except New York, including California and New Jersey, subject to eligibility and program guidelines. In California, building permits are typically required before a one-time close loan closes.
Answered by Ken Clark Jr., Certified Mortgage Advisor. Program availability and requirements vary and are subject to change.
Generally no. On a conventional one-time close loan the loan amount cannot increase after closing, and government one-time close loans are sized to the contract and appraisal at closing. Extra costs are typically paid by the builder under a fixed-price contract or by you.
Generally the builder absorbs cost increases on the agreed scope. Items outside the contract, like upgrades you request later, are typically paid by the borrower.
PRMG one-time close programs commonly require a fixed-price, turnkey contract, so cost-plus contracts typically do not fit.
A written change to the plans or contract after closing. Owner-requested changes are usually paid directly to the builder out of pocket.
They can, especially changes to structure or square footage. Let your loan team know before signing so the completion inspection matches the home.
Extensions may be possible, but they can bring fees, updated documents, or changed terms depending on the program. Build schedule cushion into your plan.
Draws typically pause. Because funds are released only for inspected work, undrawn funds remain, but a replacement builder generally needs to complete builder registration before work resumes.
Yes, in some form. Whether a contingency is built into the loan depends on the program. Keeping your own cash reserve for surprises and upgrades is wise either way.
Yes, typically through a signed change order paid directly to the builder, documented so the final inspection matches.
Builder registration is a documentation review for program eligibility, not an endorsement or guarantee. It reduces risk but does not eliminate it.
Guidelines change. Verify current program requirements with Ken Clark Jr. before relying on them for a transaction.
Disclaimer: This content is for educational purposes only and is not a commitment to lend, a guarantee of approval, or a rate quote. Loan programs, down payment requirements, terms, and eligibility depend on borrower, property, project, builder, and program qualifications, are subject to underwriting, and vary by state. Not all applicants or projects will qualify. Builder registration is a documentation review for program eligibility and is not an endorsement of any builder. Equal Housing Opportunity. Paramount Residential Mortgage Group, Inc. (PRMG), NMLS #75243. Ken Clark Jr., NMLS #225375. PRMG is licensed in 49 states, excluding New York.
Certified Mortgage Advisor and Branch Manager at PRMG Mortgage (NMLS #75243). 28 years in mortgage lending. Specializes in FHA, VA, conventional, DPA, jumbo, Non-QM, renovation, and construction financing for buyers and investors in Sacramento, New Jersey, and nationwide. PRMG is licensed in 49 states, excluding New York. Three-time Gold Award winner for Highly Reviewed Mortgage Team in Sacramento (2023, 2024, 2025). NMLS #225375.
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