What happens when your build runs over budget?

When the next builder invoice is due, it is easy to focus on finding enough to pay it. I'd first check whether that payment leaves enough money for the rest of the build.

If construction is already underway, contact the broker and lender managing the loan. They have the approval, payment history and conditions needed to deal with the immediate problem. Give them the next invoice date at the start of the conversation.

The order I would work through is:

Compare remaining money with remaining costs. Original contract prices and original approvals are useful records, but they do not tell you how much is left today.

Money available: the undrawn approved loan plus cash you can put towards the build. Include contingency savings only once, and leave out money already committed to another expense.

Money needed: unpaid contract amounts, signed variations not already included in that balance and required costs outside the contract.

Then test a separate allowance for further changes and delays. The lender's undrawn balance remains subject to its payment conditions; it is not cash you can transfer whenever you choose.

The known costs exceed the available money by $13k. Even if there is enough to pay the next invoice, the project still has a shortfall.

For this example, adding a 5% planning allowance to the $218k remaining cost adds $10,900. The gap becomes $23,900. Allowing another $3,000 for 1 month of delay takes it to $26,900.

The 5% allowance and delay costs were chosen for this example. A suitable buffer will depend on the build. Your builder and relevant advisers need to identify the uncertain costs in your project.

Write down the lender's current undrawn balance and the builder's unpaid contract amount. Add cash, variations and work outside the contract, using the 2 tables above as a guide. Keep proposed upgrades separate until you decide whether to proceed with them.

Use the result to see which figure needs attention and how another cost or delay changes the gap. It does not calculate borrowing capacity or confirm that the lender will release a payment.

If a revised contract already includes a variation, do not add that variation again. Record any deposit already paid in the payment history and exclude it from the remaining costs.

The same applies to cash. A $20k contingency is not an extra $20k if it is already part of the savings balance entered into the budget. Ask the builder and broker to work from one reconciled schedule.

Ask the lender for the current undrawn balance, the stage it is ready to fund and any outstanding documents or inspections. That separates a total funding problem from a payment that is delayed because a condition has not been met.

Ask the builder for one schedule showing the original contract, paid claims, unpaid claims, agreed variations, proposed changes and the cost to finish. Put the next payment date beside those figures.

A disagreement with the builder and a request to increase the loan are different issues. Do not treat loan approval as confirmation that an invoice is legally payable or that the work is satisfactory.

A variation is a change to the building contract. It may change the work, price or completion date.

For Queensland domestic building work, the QBCC explains the written variation requirements. Ask for the description, price effect and time effect before the changed work starts, and obtain advice if you are unsure what you are agreeing to.

Send the change to the lender as well. The builder's agreement does not amend your loan approval. For example, Westpac's construction guide says it needs to know promptly about changes to the contract price; significant changes may require a new valuation.

It may, but an increase is another lending decision. The lender needs to consider the larger debt and the revised project, rather than simply adding the variation amount to the old approval.

Expect it to check your current income and commitments, the property's accepted value, the revised contract and whether the combined loan and cash are enough to complete the home.

If your income has changed, give the broker the evidence. If the scope has changed, provide the updated plans and builder's figures. A complete request gives the lender something it can assess; a request for an extra amount without a completion budget leaves the main question unanswered.

The value of the finished home and the cost to finish it are different figures. Extra excavation or replacement materials can cost money without adding the same amount to the valuation.

A higher accepted valuation may help the lending calculation. It does not confirm that the larger loan is affordable or that the lender will approve it.

If you think the valuation contains an error, ask your broker about the lender's review process. The guide to challenging a bank valuation explains the evidence that can help.

Do not rely on another person's approval as proof that your lender will fund the same change. Construction loans can have different contribution rules, draw conditions and completion deadlines.

ANZ's construction handbook, for example, contains a specific over-budget process and directs customers to discuss delays that may exceed the construction period. That is a reason to check the terms of your own loan early, not a promise of extra funding.

Ask when an assessment and any valuation can realistically be completed. If that date is later than the builder's claim date, the contract and payment timing need attention too.

Start with changes that can reduce the gap without creating another debt problem. Then test whether additional borrowing is both available and affordable.

Ask the builder which upgrades can be removed, substituted or completed later. Confirm the effect on the contract, approvals, final inspection and whether the home can be legally occupied.

Do not assume that every unfinished item is optional. Removing an item needed for completion can stop the final payment rather than solve the shortfall.

Check savings against rent, construction interest, storage, moving and costs still outside the contract. Emptying the account to pay one invoice may leave another essential payment uncovered.

A reserve already allocated to a driveway or service connection is part of the completion budget. It is not spare cash.

Provide the amount required to finish, why it changed and when it is needed. Include the updated builder schedule and supporting documents together.

I would check the existing construction loan before assuming a refinance is the answer. A new lender must be willing to accept the partly completed property, builder and remaining work, and the timing may not fit the next payment.

Keep the current arrangement in place until any replacement is formally approved and the changeover has been agreed. Do not cancel access to approved construction funds on the strength of an estimate.

A personal loan or credit card may pay an invoice quickly, but its repayments can affect a later loan application. Do not assume the new debt can be rolled into the mortgage when the build finishes.

Ask the broker to assess the whole plan before using another credit facility to fill the gap. The plan needs to work if the expected refinance is delayed or declined.

If you may miss a home loan repayment, contact the lender's hardship team early. A hardship arrangement may change repayments, but it does not itself supply money to finish the building work.

Moneysmart explains how to ask for hardship assistance. Free financial counselling is available through the National Debt Helpline on 1800 007 007.

Tell the lender promptly. A stalled project may need legal, building and insurance advice as well as a revised finance assessment.

Collect the contract, variations, draw history, inspection reports, insurance documents and the latest account of completed work. If a replacement builder has quoted, include that quote and its exclusions.

A different builder can change the price, timing and documents the lender relied on. Confirm the lender's requirements before signing a replacement contract, and get legal advice about the existing contract rather than assuming you can simply transfer the unfinished job.

If the immediate issue is how an invoice is submitted or inspected, the construction finance guide explains the general payment sequence. For the original choice of renovation funding, see renovation loans.

Send your broker or lender the revised cost to finish, current loan balance, cash available and next claim date. Ask them to confirm both the payment conditions and the funding needed to reach completion.

If Hunter Galloway manages your construction loan, contact your broker or call 1300 088 065. If another broker or lender manages it, start with them. Once the home is complete, we can help compare the ongoing loan rate and repayments.