Cost plus construction contract

As a stipulation from my lender on a new home const. loan, I entered a contract early with my builder. ( I wanted to wait until after I was approved.) After the lender viewed the contract which was cost plus - they required a "max price" from the builder. The builder refused, so the bank would not approve the loan for my home. Now i need to get out of the contract.
Is this the builders fault? Is he breaching the contract by not providing the bank with all needed/required info?
Is this my fault? After he refused to put a cap on the price I feel he was probably being dishonest with me about the actual cost to build and I do not want to use him as a builder any longer.
He also refuses to give me the $1000 deposit back.
What do I do?

You could try to sue him in small claims (or other court) arguing he had a duty to provide some kind of reasonable cap--and his failure to do so damaged you. And he certainly should not then keep your deposit.