A contingency is a line item in your cost breakdown that does not have a specific element of your build associated with it. If, during the course of construction, you decide you want some additional work done, or you decide you want to upgrade your materials (from granite tile to a slab of granite for example), you can used the money in your contingency item to do this. Without a contingency, you would have to pay “out of pocket” for these changes, since the loan amount on a construction loan cannot be increased during construction. A contingency is generally a good idea if there is room enough in your appraisal or total cost such that you are not already at the maximum loan to value percentage allowed at your loan amount. Naturally, you also have to be able to qualify for the higher loan amount necessitated by the inclusion of a contingency. You only pay interest on the amount borrowed, so you are not charged interest on unused contingency funds. By virtue of raising your loan amount, the inclusion of a contingency will slightly increase your points and some of your title and escrow fees.