Can I finance a custom or cost plus building contract?

If you are planning a bespoke or architectural build, you may find that construction lending is set up around fixed price contracts, which a custom or cost plus build does not always fit. It is not necessarily a dead end. Here is how lenders tend to approach non standard building contracts.

Why lenders prefer fixed price contracts

Most construction lending is built around fixed price building contracts, where the builder commits to a set price for a defined scope. Lenders prefer this because the total cost is certain, which makes it easier to size the loan and manage risk through staged progress payments.

Cost plus and custom builds are different

A cost plus contract, where you pay the actual cost of the work plus a builder margin, does not fix the final price upfront, and a custom architectural build can involve a less standard contract. Because the end cost is less certain, these sit outside the simplest lending box, which is why they need more care.

Some lenders will still finance them

Some lenders will finance custom or cost plus builds, but generally with more scrutiny. They may require detailed plans and costings, a larger contingency allowance for cost overruns, stronger evidence of the builder and your capacity, and tighter conditions on progress payments. Whether a lender offers this varies.

Contingency and cost overruns

Because the final cost of a cost plus build can move, lenders are particularly focused on how overruns would be covered. They may want a contingency built into the budget and comfort that you could fund any shortfall. Planning for this from the start makes the loan easier to arrange.

More documentation is normal

Expect to provide more detailed documentation for a non standard build, including comprehensive plans, costings, builder details and possibly fixed price elements where they exist. The more clearly the project and its costs are documented, the more comfortable a lender can be.

Policies vary and change

How lenders treat custom and cost plus contracts differs between lenders and changes over time. A lender that declines a non standard contract is not the whole market, so it is worth finding one whose policy accommodates your build.

Match your build to the right lender

Because treatment varies so much, the useful step is to match your specific contract and project to a lender whose construction policy accepts it. A broker who works with construction lending can identify suitable lenders and help structure the finance, usually at no cost to you. This is general information, not advice.