By using our hard money loan calculator, you can determine the price of a potential loan, along with its associated costs. You can find out your monthly payment, total interest expenses based on how quickly you can repay the loan, and other closing costs that need to be paid in connection with the loan.
Hard Money Calculator Inputs
If you’re unfamiliar with what you should enter in the calculator, we’ve provided a brief description of common terms below.
Loan Amount
This is the amount that you expect to borrow from the lender, and each has its own guidelines for minimum and maximum amounts. The loan amount can also be determined by a lender’s required down payment. The required down payment can be determined by one of the following methods:
- Loan to value (LTV): The LTV ratio is calculated as your loan amount divided by the purchase price or appraised value of the property, whichever is less.
- After repair value (ARV): The ARV is the price you expect to sell the property for once you have completed the repairs. A knowledgeable real estate agent or property appraiser can be helpful in determining this figure based on comparable sales within the neighborhood.
- Loan to cost (LTC): The LTC ratio is calculated as your loan amount divided by the total cost of the project. The total cost of the project is the purchase price plus the cost of repairs.
Interest Rate
Interest rates for hard money loans tend to be higher than those found on commercial real estate (CRE) loans and other forms of financing and usually start around 8%. The applicable interest rate can vary depending on the qualification criteria required from the lender, the size of your down payment, and your level of experience as an investor.
Holding Period
The holding period is how long you intend on keeping the hard money loan before paying it off. Since hard money loans are considered short-term financing, the repayment period has a shorter time frame, with most loans due within two years. They are typically paid off when the property is repaired and resold as part of a flip or when the property is repaired and replaced with traditional financing.
Closing Costs
Specific closing costs can vary depending on the lender. These can range from 2% to 6% of the loan amount. Some common examples include:
- Origination fee: As part of the application, most lenders charge an origination fee that covers the processing and underwriting aspects of facilitating a loan.
- Points: This is calculated as a percentage of the loan amount. For example, a lender charging 2 points on a loan amount of $100,000 would equate to an additional cost of $2,000.
- Appraisal fee: Some lenders may charge this fee to have a certified appraiser inspect a property to determine its market value.
- Flood certification fee: This is charged by some lenders to assess whether a property is located in a flood zone.
- Title insurance: To ensure a clean transfer of property ownership, title companies conduct a search of public records to ensure no outstanding liens or ownership claims exist against a property. Title insurance offers protection against any potential defects in the title search process.
- Escrow fee: This is charged to have an escrow company act as a neutral third party to facilitate the transfer of funds between buyers and sellers.
- Government recording fee: Local counties often assess fees to process and record grant deeds and other paperwork to document an ownership transfer.
- Property tax: Property tax amounts are often available online through the county tax website. However, amounts are often reassessed upon the sale of a property, so your next tax bill could be higher. Although property taxes are usually paid annually or semi-annually, you’ll only be responsible for paying a prorated portion of taxes depending on how long you own the property.
- Property insurance: Many property insurance policies charge on an annual or semi-annual basis, but you may be able to receive a refund for any unused portion of your premium if you end up selling the property sooner than expected.
- Broker fees or real estate commissions: Broker fees or real estate commissions can range from 3% to 6% of the selling price of the property. This is often a fee paid for the services they provide, such as locating properties to purchase, completing the necessary paperwork, and finding a buyer for your home. These fees can often be negotiated.
Hard Money Calculator Outputs
Interest-only Monthly Payment
Most hard money loans have monthly interest-only payments. Since you’re only repaying the accrued interest, the total loan balance is due at the end of the loan term with a balloon payment—usually after the sale of the property. In some cases, the loan can be refinanced instead.
Total Interest Paid Until Balloon Payment
The total amount of interest you will end up paying for the loan is based on how long it takes for you to either sell the property or replace it with a more permanent type of financing.
Total Cost of the Hard Money Loan
This is the sum of the costs paid for acquiring the loan and the total interest charges you will have paid based on how long you have the hard money loan.
Balloon Payment Amount
Most hard money loans are structured with interest-only payments, so the balloon payment that is due at the end of the term will be the amount of the loan you initially borrowed.
Who a Hard Money Loan Is Right For
A hard money loan is used to finance the purchase of real estate properties and is often offered to borrowers who are ineligible for traditional financing. In comparison to other types of CRE loans, they are typically more expensive and have higher rates and fees. They’re most commonly used by investors.
- Fix-and-flip investors: Properties in poor condition that are ineligible for traditional financing can be purchased and repaired by flip-and-fix investors. The property is purchased at a low price, and once the property has been repaired, these investors will then resell the property to flip it for a profit. Since hard money loans are short-term loans, many property flips are done in under one year.
- Buy-and-hold investors: Properties in poor condition that are ineligible for traditional financing can be purchased and repaired by a buy-and-hold investor. Once repairs have been made, these investors will refinance the hard money loan into traditional financing and retain ownership of the home as a rental or other type of investment property.
How to Qualify for a Hard Money Loan
Depending on the lender, qualification criteria to get a hard money loan will vary. Some factors taken into consideration are:
- Credit score
- Value of the property
- Financial history
- Flipping experience
Generally, lenders want to evaluate the level of risk your investment property imposes. A good credit score and strong financial history can help mitigate such risk, alongside your flipping experience. Keep in mind, you should have sufficient funds to cover a down payment, as many lenders will place a heavy emphasis on the current value of the home, cost of repairs, and ARV of the property.
If you’re looking for a hard money loan, we recommend visiting Kiavi because its low rates can help you save money and be profitable as an investor. It offers a quick application and funding process and rates as low as 9.25%.
Alternatives to a Hard Money Loan
- Business line of credit: A business line of credit is a revolving credit facility that allows you to request a draw on the line, have the funds deposited to your account of choice, and make necessary business purchases. You can utilize funds on an as-needed basis, and repay the balance over time.
- Home Equity Line of Credit (HELOC): Similar to a business line of credit, a HELOC is a revolving credit line attached to the value of your home. Available to homeowners with good credit, a HELOC can provide funds for short-term expenses and be repaid within the draw period. See our article on using a HELOC to fund your business for guidance.
- Personal loan for business: If you don’t qualify for a small business loan, you can apply for a personal loan and use the funds towards your business. There are various loan programs, which are typically easier to qualify for as long as you have a strong credit history. For our recommendations, see our list of the best personal loans for business funding.
- Friends and family loan: If you’re seeking a different route than traditional financing, you can ask trusted friends or family members to finance your business endeavors. While you’ll still need to repay the loan with an applicable interest rate, you can often secure more favorable loan terms than from a bank or other lending institution. Refer to our step-by-step guide on raising money from family & friends to fund your business for help in this area.
Frequently Asked Questions (FAQs)
Generally, yes. Hard money loans tend to have higher interest rates and fees attached to them since they’re used for short-term financing. While not always the case, they are a more expensive financing option in comparison to traditional loans.
Qualification requirements will vary depending on the lender, but they are generally easy to qualify for and are especially accessible to borrowers who are ineligible for other types of loans.
Rates and terms will differ per lender; however, interest rates tend to run from 8% to 20%, with loan terms averaging 12 to 36 months.
Bottom Line
Using our hard money loan calculator can help you determine what you can afford for a loan. While hard money loans can be useful to borrowers looking to purchase investment properties, they don’t come without risk—so you’ll want to ensure that the associated costs are within your budget before pursuing this route.
