Soft Costs
Direct definition
Non-construction costs of a build — permits, design, engineering, legal, and financing.
Written by the Vabasso Mortgage Editorial Team · Reviewed against agency and federal sources · Read our editorial policy for how we research and review mortgage content
Plain-English explanation
Soft costs typically run 10–20% of a project. Lenders include them in the total project cost when calculating LTC.
Why it matters
Underestimating soft costs is a common cause of construction shortfalls.
Where you may see it
- Construction budget
- Loan Estimate
- Draw schedule
A real-world example
On a $500,000 build, soft costs of $75,000 (15%) cover permits, architect, engineer, and loan fees.
Educational and illustrative only
A common misunderstanding
Soft costs aren't optional line items to skip — permits, design, and financing costs are often required parts of a construction budget.
Ask Vabasso AI
This glossary provides general educational information. Mortgage terminology, qualification methods, forms, timelines, fees, program rules, and legal meanings may vary by lender, investor, loan program, property, occupancy, state, and transaction. Definitions do not represent loan approval, legal advice, tax advice, or a commitment to lend.
- Author
- Vabasso Mortgage Editorial Team
- Reviewed by
- Vabasso Mortgage Licensed Advisory Team
- Last reviewed
- July 30, 2026