A hard money loan is a loan on a real estate property’s purchase where the property is not resold the same day it is purchased. The interest rate on hard money loans reflect the risk involved in holding a property in the local real estate market and later possibly having to foreclose on it. The success of the loan is also a function of whether the rehab and resale of the property is successful.
The cost for hard money loans varies greatly, as these lenders may include costs for document prep fees, inspection and miscellaneous costs as well as points for loan origination. In the lending industry, one point = 1% of the purchase or sale price if applicable. Hard money loans additionally have an annual interest rate. The points can be as little as 1 point to as many as 10 points and the interest rates can be from 8% to 20% annually.
For a $100,000 loan with three points ($3,000) and doc prep fees of $1,000 with an interest rate of 12% for six months = $3,000 + $1,000 + (12% x $100,000/12 X 6 = $6,000) = $4,000 + $6,000 = $10,000 total in this example or a net of 10% of the money borrowed. Transactional Funding on the same amount could be as little as $1,050.