Building a home from the ground up? Here’s exactly what a construction loan covers so you can plan with confidence and avoid costly surprises.
If you’ve ever envisioned building your dream home, one designed just for you, from the ground up, you know how exciting the process can be. Choosing your finishes, customizing every room, and watching your vision come to life is incredibly rewarding. But before the first shovel hits the dirt, one big question needs to be answered: How will you pay for it?
That’s where a construction loan comes into play. Unlike a traditional mortgage that you take out on a home that’s already built, a construction loan is designed to finance the entire building process. But what exactly does a construction loan cover, and what should you expect to pay out of pocket? Let’s walk through it together.
What Is a Construction Loan?
A construction loan is a short-term loan used to finance a residential property’s building or major renovation. These loans differ from conventional mortgages because the funds are released in stages typically aligned with varying construction phases. This is called a “draw schedule,” which allows builders to get paid as work is completed and inspected.
Because construction loans are riskier for lenders (after all, the home doesn’t exist yet), they tend to have slightly higher interest rates. However, they’re a vital tool for building a custom home. At Trentium Capital, we offer flexible, transparent construction loan options tailored to your timeline and budget so you can focus on building and not stress over financing.
What Does a Construction Loan Cover?
Construction loans are built to cover just about everything you need to bring a home to life. Here’s a closer look at the expenses typically included:
1. Hard Costs
These are the physical construction costs, the tangible pieces of your home. This includes lumber, concrete, drywall, flooring, roofing, and cabinetry. It also covers the cost of labor, from general contractors to specialized trades like plumbers and electricians. Essentially, anything that becomes part of the home’s physical structure usually falls into this category.
2. Soft Costs
Soft costs are just as significant, even if they’re less visible. These include architectural and engineering fees, permit applications, legal expenses, and any costs associated with inspections or approvals. Most construction loans, including those from Trentium Capital, cover soft costs to ensure your build stays compliant and up to code from start to finish.
3. Site Preparation and Land-Related Costs
If you’re buying land to build on, some construction loans can include the cost of the lot. Site preparation, such as clearing trees, leveling the ground, and bringing in temporary utilities, is often covered.
4. Contingency and Interest Reserves
Construction loans usually include a contingency reserve to help cover unexpected costs, such as material price increases or minor design changes. Many lenders also allow for interest reserves, so your interest payments during construction are rolled into the loan, meaning you don’t have to pay out of pocket while your home is being built.
What’s Not Covered by a Construction Loan?
While construction loans are incredibly comprehensive, they typically don’t cover a few things. These include movable furniture, home décor, and landscaping upgrades (like pools, outdoor kitchens, or extensive gardens). Likewise, standard construction loans may not cover appliances unless they’re built-in.
This is why it’s so important to discuss the scope of your loan with a lender who understands the details, like the team at Trentium Capital. We ensure our clients know exactly what’s covered and help build in buffers so there are no surprises.
Hard Costs vs. Soft Costs: What’s the Difference?
Understanding the difference between hard and soft costs is key when planning your construction loan. Hard costs are related to the home’s construction, such as tiles, mortar, windows, and labor. On the other hand, soft costs are everything behind the scenes: permits, design fees, legal costs, and interest.
Both are essential to a successful project, and your construction loan should account for them accordingly. At Trentium Capital, we help you plan for both so your budget reflects the real-world cost of bringing your home to life.
The Construction Loan Process: What to Expect
Getting a construction loan might feel intimidating, but it doesn’t have to be. It typically starts with pre-approval, where you’ll provide your financial documents and a detailed construction plan (including cost estimates). Once approved, funds are released in phases, and inspections are done to confirm progress. During the construction period, you’ll usually make interest-only payments.
Once construction is complete, the loan converts into a permanent mortgage, or you can refinance. Either way, the goal is to transition smoothly, and Trentium Capital is here to walk you through every step.
Final Thoughts: Build with Confidence
Knowing what a construction loan covers gives you a huge advantage when planning your build. From foundation to finish, these loans are designed to take you from blueprint to move-in day with clarity and control. But, like any major financial decision, it pays to work with a lender who understands the details and your vision.
At Trentium Capital, we specialize in helping homeowners and developers secure construction financing that works. Whether building your first home or taking on a custom project, we’ll be your partner, offering expert guidance, flexible terms, and a genuinely human approach.
Ready to Start Building?
Let’s bring your vision to life together.
Contact Trentium Capital today to learn more about our construction loan solutions and how we can help finance your dream home from the ground up.
