There are three risks I see:
1. The builder losing interest / not being on time / not being on budget / prioritizing other jobs above yours. I suppose most of these can be handled in the contract. One common strategy is to hold back a big chunk of the final payment to incentivize completion.
2. The builder going under and leaving you with an unfinished house. I think with a solid builder with a good reputation, the risk is minimal here.
3. Mechanics / subcontractor liens on your house if they are not paid by the GC. Probably a title search after the house is done and inspected (?) would be smart.
Those certainly are all risks but there are a lot of other risks. I couldn't possibly list all of them. FWIW, I have seen builders with a good reputation go under. It isn't that unusual. Sometimes the company that builds the house goes under but the actual individual builder immediately starts up a new company. That leaves the old company with all the debt and liabilities and the new company with all the new income.
Another risk is the builder or a sub does poor work. Yes, even "good" builders can have a bad some or do poor work. Sometimes a builder that seems "good" is not so good or they get a new superintendent who isn't good, etc.
Another risk is that the homeowner doesn't have a right to inspect the work as it goes on and there is poor work done that may not manifest itself for a long time and the homeowner has no clue.
Another risk is that the homeowner thinks a provision in the contract means X and the contractor thinks it means Y. These disputes are not always easy to predict. There is where having an attorney review the contract and assisting in wording can often help.
Another risk is that sometimes happens that isn't the fault of anybody but the agreement doesn't really address how to handle it. Something like -- just to pick something at random -- a pandemic suddenly occurs.
If the agreement is cost plus there are many ways for fraud to occur. The builder can falsify invoices. The builder can say that they are supplying some expensive fancy product and substitute something cheap. The builder can give a kickback to a vendor who generates an invoice the homeowner will see (high) and then one for the builder (lower). The Builder can buy goods or services from companies owned by the builder or a relative. I am not necessarily opposed to cost plus. It has advantages and disadvantages. But, the homeowner needs to be aware of what can go wrong.
Of course, bad stuff can sometimes with fixed price contracts as well. The builder is supposed to supply something of X quality and supplies something else that is much lower quality and cheaper. But, the price doesn't go down. And, that is assuming the contract has detailed specifications as to the quality and particulars of everything. Lots of times the contracts don't detail that stuff. The homeowner assumes they are getting X and the contractor says the contract only requires Y. X will be more money.
There are lots and lots of risks (the above are just a few examples). Having a lender may help with some of them. But the lender is protecting the lender. The homeowner needs to protect the homeowner through things such as having an attorney. For some very expensive homes, the homeowner may want to consider having construction overseen by a construction manager or by having an architect sign off on some things. But, I would start with having an attorney who represents the interests of the homeowner.
