Custom Build Budgets: Allowances, Change Orders and Upgrades
Most custom home budgets go over in three places: allowances that were set too low, change orders made after the contract is signed, and upgrades added during selections. Each of these can affect your construction loan as well as your budget. Lenders generally approve the loan based on the original contract and plans, so extra costs usually have to be paid in cash, covered by a contingency if the loan includes one, or approved by the lender before work continues.
I'm Paul Mattos, a mortgage broker with Refine Mortgage, licensed in North Carolina and South Carolina. Before mortgage, I spent years in on-site new-construction sales, sitting with buyers through selections and change orders. Now I see the same decisions from the financing side. Here's how to plan for them so your budget and your loan stay on track.
What Is an Allowance?
An allowance is a set amount in your build contract for an item you haven't picked yet. Common allowances include:
Cabinets and countertops
Flooring and tile
Lighting fixtures
Plumbing fixtures
Appliances
Hardware, mirrors and shelving
Landscaping
If your final choice costs less than the allowance, you may get a credit. If it costs more, you pay the difference, and some builders add a markup on overages. Ask how your builder handles both before you sign.
Why Allowances Run Over
Allowances usually run over for one of three reasons:
They were set for builder-grade selections, and you fall in love with something nicer in the showroom.
They cover materials only, not labor. Tile is a common example.
Prices changed between the contract date and when you made your selections.
How to Set Realistic Allowances
Visit showrooms and price your actual choices before you sign the build contract.
Ask whether each allowance includes installation, and whether it's per item, per square foot or a total.
Ask the builder what past buyers usually spend compared with the allowance.
If you know you want higher-end finishes, raise the allowances in the contract now, so the loan is sized for the home you're actually building.
What Is a Change Order?
A change order is a written change to the plans, specs or price after the contract is signed, like moving a wall, adding a window, upgrading cabinets or adding a screened porch.
Change orders often come with:
A price change, sometimes with an admin fee
A schedule change, especially if materials have to be reordered or work redone
Paperwork for the lender, if the change affects the price, the plans or the value
Why Timing Matters
The later the change, the more it usually costs. Moving an outlet before drywall is simple. Moving it after drywall means cutting, patching and repainting. As a rule of thumb:
Before framing: layout, room sizes, windows, ceiling heights
Before rough-ins: plumbing locations, electrical, lighting, low-voltage wiring and HVAC
Before drywall: blocking for TVs and shelves, extra insulation, conduit for future wiring
Before finishes: flooring, tile, paint and fixtures
How Overages Affect Your Construction Loan
This is the part buyers don't hear about until it's too late.
The Loan Is Based on the Original Plans
With a construction loan, the lender reviews your build contract, plans and specs, and the appraisal is based on what the finished home will be worth. The loan amount is set from those numbers. If the price goes up later, the loan doesn't automatically go up with it.
Who Pays for the Difference?
Depending on the program and the lender, extra costs are usually:
Paid in cash, often before the related work is done or before the next draw
Covered by a contingency reserve, if one was built into the loan
Added to the loan, only if the program allows it and you still qualify, which may require updated documents or a new appraisal
That's why I tell clients to keep savings set aside beyond the down payment and closing costs. A budget cushion is one of the best ways to protect a custom build.
Changes Can Affect the Appraisal
Major changes, like adding square footage or a garage, may change the home's value and require an updated appraisal. Expensive finishes don't always add as much appraised value as they cost, especially if they're well above what similar homes in the area have.
Talk to Your Loan Officer Before Big Changes
Before you sign a large change order, check with your loan officer. A short call can tell you whether it needs lender approval, whether you'll need to bring cash and whether it affects your closing or timeline.
Which Upgrades Are Worth Doing Now?
Some upgrades are much cheaper during construction than later. Others are easy to add after you move in.
Usually worth doing during construction:
Structural changes: room sizes, ceiling height, extra windows, a larger garage
Plumbing locations, like a utility sink or a future bathroom rough-in
Electrical and wiring: extra outlets, lighting circuits, EV charger wiring, low-voltage cabling
Insulation and energy efficiency
Blocking in walls for TVs, grab bars and heavy shelving
Often fine to do later:
Paint colors
Light fixtures and hardware
Window treatments
Landscaping and fencing
Some appliances
If you'll want something later, ask whether rough-in work can be done now. Finishing a basement or bonus room down the road can sometimes be funded with a HELOC once you've built equity.
Questions to Ask Your Builder Before You Sign
Which items are allowances, and what's included in each one?
Do allowances include labor and installation?
How are overages and credits handled, and is there a markup?
What's the change order process, and are there fees?
What are the deadlines for each selection?
When is it too late to change layout, electrical or plumbing?
Will change orders affect the completion date?
Questions to Ask Your Lender Before You Close
Does my loan include a contingency reserve?
How are change orders approved during construction?
If costs go up, do I pay cash, and when?
Could a change require a new appraisal?
How long does my rate lock last if the build runs long?
Planning a Custom Build in the Carolinas?
If you're comparing builders or haven't picked a lot yet, start with the financing so your budget is set before you fall in love with a plan. My guide to buying a new construction home in Charlotte covers production builders, and my specialized home loans page explains one-time-close construction loans. If you're shopping for land, read what to check before buying land to build on in South Carolina.
Meet the Builder: Austin Vollmar, Stratx Construction
If you're planning a custom home and want to talk through plans, allowances and selections with a builder, reach out to Austin directly.
Austin Vollmar
Stratx Construction
Phone: 248-821-8398
Email: austinvollmar@thestratxgroup.com
Website: stratxconstruction.com
Let's Build a Budget That Fits
If you're planning a custom home in North Carolina or South Carolina, I'll review your build contract, allowances and savings with you before closing, so you know how much cushion you need and what happens if costs change. Schedule a mortgage consultation or start your mortgage application.
Paul Mattos
Mortgage Broker | Refine Mortgage
Carolina Home Financing
NMLS# 2339069 | Licensed in NC and SC
Call or text: 980-221-4959
Email: paulm@refinemortgage.net
Refine Mortgage Inc. | NMLS# 2417960 | Equal Housing Lender. This article provides general educational information and is not a commitment to lend, a rate quote, an offer of specific credit terms, or legal advice. Construction loan programs, contingency reserves, change order approval, draw procedures and rate lock options vary by lender, program, borrower and property. Approval is subject to credit, income, assets, appraisal, title and underwriting requirements. Not all applicants will qualify.
