Hard Money Loan Calculator: How Much Will Your Loan Cost?
This article is part of a larger series on Business Financing.
Hard money loans are popular among investors looking to acquire properties that may be ineligible for traditional methods of financing because they’re in need of repairs. Our calculator will help you figure out how much these loans will cost. 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.
If you’re looking for a hard money loan, we recommend 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 8.45%.
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.
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 cost of repairs.
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 9%. Your interest rate can vary depending on your qualifications, such as the size of your down payment or level of experience as an investor.
This is how long you intend on keeping the hard money loan before paying it off. Hard money loans are short-term loans that must be repaid in a short time frame, generally no more than two years. Typically, they’re 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.
Specific closing costs can vary depending on the lender. These can range from 2% to 4% of the loan amount. Some common examples can include:
- Origination fee: This is charged by some lenders to give you the mortgage loan. Some lenders may also call this an application fee, processing fee, or an underwriting fee.
- 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
Since most hard money loans have interest-only payments, this is how much you must pay each month until you can either sell the property or replace the loan with another source of financing.
Total Interest Paid Until Balloon Payment
The total amount of interest you’ll end up paying for the loan 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’ll 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 a type of financing used to purchase real estate and tends to be more expensive than traditional forms of financing—and most are structured to have interest-only monthly payments. They’re often used by investors in acquiring properties to be repaired and flipped for a profit, so they have short repayment periods, with many being paid back in less than one year. They’re usually used as a last resort when a borrower or the property is ineligible for other types of loans:
- 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
Requirements vary depending on the lender but typically involve a combination of your credit score, income, and property value. Your property flipping experience may also be evaluated as not all providers will be able to cater to first-time flippers. You should also have enough funds for a down payment, as many lenders will place a heavy emphasis on the current value of the home, cost of repairs, and the after-repair value of the property.
For more details, you can read our guide on How To Get a Small Business Loan in 6 Steps.
A hard money loan can be useful in helping investors purchase properties that would otherwise not be possible. By using our hard money loan calculator, you’ll be able to determine the costs associated with getting one of these loans. Staying organized and tracking all of your expenses can help you stay profitable as an investor.