Hard Money Loan Calculator

Calculate profits on your next fix and flip project

Hard Money Loan Details

85%
10%
0.5%
1.5%
8
2.5%
5%
$200

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Hard Money Loan Calculator FAQ

A hard money loan is a short term real estate loan used by house flippers to purchase and renovate properties. A hard money lender provides the capital the investor needs to purchase the property, complete high ROI renovations, and thereby increase the after repair value of the home.

Crucially, the real estate investor is required to pay back the full loan amount at the end of the loan terms (usually 12-24 months).  Usually, the funds from the sale of the house are used to pay back the full loan amount.  

In most cases, hard money lenders will provide 70 to 90% of the funds needed to complete the project, meaning that the house flipper is responsible for covering the shortfall. 

For the process to work successfully, the after repair value of the property must be substantially more than the original purchase price. 

In addition, it’s also worth clarifying that there several different types of hard  money loans, including:

Reputable Hard Money Lenders like New Silver offer interest-only repayment terms. For example, if you were offered a $200,000 hard money loan, with a 10% interest rate, your monthly payment would work out to $1666.66. Here’s how it works:

  • Amount Borrowed: $200,000
  • Annual Interest Rate: 10%
  • Monthly Repayment: Amount Borrowed * Annual Interest Rate / 12
  • Monthly Repayment: $200,000 * 10% / 12
  • Monthly Payments: $1666.66

In other words, your monthly payment only covers the interest portion of the capital that was borrowed. However, you are required to pay back all the capital that was borrowed when the loan expires. 

It helps to think of it as a balloon payment,  but instead of paying a portion of the capital back, your balloon payment covers the full amount borrowed. 

Hard Money Loan Monthly Payments only cover the interest portion of the loan. This means that with each monthly payment, you don’t make a dent in the total capital that was borrowed. Instead, the expectation is that you will pay back 100% of the capital, at the end of the loan‘s life cycle.

For example, let’s imagine you applied for hard money financing to the value of $150,000, with an interest rate of 10% and a loan term of 6 months. In this case you would pay:

  • Month 1: $1250 ($150,000 * 10% / 12)
  • Month 2: $1250
  • Month 3: $1250
  • Month 4: $1250
  • Month 5: $1250
  • Month 6: $1250
  • End of the loan: $150,000

As you can see from the example above, you only pay off the interest portion of the loan each month. You repay the full capital amount when the loan expires, using the funds from the sale of the house that was flipped to do so.

Apart from a higher interest rate, this is one of the main ways in which a hard money loan differs from a traditional loan. With a traditional lender, the monthly payment is a mixture of the interest owed and the outstanding capital amount. This is what allows the borrower to pay off their entire mortgage over time. The borrower basically chips away at the capital month after month and year after year. When the loan comes to an end, there is no more capital to pay off.

This traditional financing approach doesn’t work for house flippers, because of the cash flow challenges that it would introduce. Conversely hard money lending provides a short term loan solution for property investors that need to successfully execute a real estate deal.

Hard Money Loan Rates typically range from 7.5% to 15%, depending on the hard money loan lender that you choose, the borrower‘s creditworthiness, and the amount of house flipping experience that the investor has.

In most cases, these three attributes wiill have a massive impact on the final rate that is offered to you. Generally speaking, the better your credit history and the more house flipping experience you have, the lower the loan rate will be.

In most cases, the house flipper is required to put down between 10% and 20% of the project cost. For example, if the hard money lender covers 85% of the project cost, the investor would need to cover the shortfall of 15%.

On average, borrowers need a 600 credit score. Compare that to the average 680 – 700 credit score traditional lenders require and it’s easy to see why hard money loans are a great option.

If you plan to keep the home and rent it out, you may find credit score requirements to be a little higher – usually around 680 only because the risk is higher. 

On a broad level, hard money loans and bridge loans are very similar. However, bridge loans can be offered by traditional finance institutions, and they can be used to fund a wider range of purchases (rather than just real estate). 

While the interest rates on traditional loans are typically lower, the approval process is far more stringent and time-consuming. This can be a dealbreaker when you spot an opportunity for a fix and flip. In most cases, you need to move swiftly in order to capture the deal. That is why a hard money lender like New Silver can be so useful to investors. Effectively you get:

  • Flexible loan terms
  • Easy loan applications
  • Less stringent financial requirements
  •  Speedy approval and closing
  • Instant proof of funds

The origination fee is an additional cost associated with hard money loans. It usually ranges from 1-3% of the loan, but this is ultimately up to the lender that you choose. It is the expense that the lender charges the borrower to cover all the costs associated with initializing the loan. 

So, if your loan amount is $200,000 and the origination fee is 1%, that would result in a cost of $2,000. This cost is built-in as a percentage in our hard money calculator. You can change it, using the dial in the calculator. 

Additional Real Estate Calculators & Resources

Rental Property Calculator: Workout the potential profitability of an investment property with our Rental Property Calculator.

Cap Rate Calculator: Cap Rate is a simple formula that helps investors work out how profitable an investment property is likely to be. Our Cap Rate Calculator makes this easy to do, in very little time.

BRRRR Calculator: Each step in the Buy, Rehab, Rent, Refinance, Repeat (BRRRR) requires detailed analysis before you proceed with the deal. Fortunately our BRRRR Calculator breaks the process down into simple phases that are pretty easy to understand.

Home Appreciation Calculator: To workout how much your home will be worth in the future, you simply need to know the interest rate and how long you expect to hold the property for. With our simple Home Appreciation Calculator, you can workout the future value of your home very quickly.

ARV Calculator: Quickly assess the After-Repair Value of a property with our user friendly ARV Calculator.

FlipScout: FlipScout is a free search engine for property flippers. It lets you find properties that you can earn the highest return on when completing a fix and flip or fix-to-rent project. You can learn more about FlipScout here.