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Hard Money Loan Calculator

Hard Money Loan Calculator: Profits, ROI, Interest, & Repayment

flipping houses real estate financing Feb 05, 2024

A hard money loan calculator is a tool that can help investors assess the potential costs and terms of a hard money loan. This article will explore the ins and outs of hard money loans, telling investors everything they need to know about hard money, including:

When traditional lending is incapable or ill-equipped to facilitate a short-term real estate transaction, alternative financing solutions become invaluable to investors. Hard money loans, in particular, are the perfect solution for investors when institutional loans can’t cut it; they offer real estate investors quick access to cash in an industry where speed is a competitive advantage.

It is worth noting, however, that there are many “moving parts” to hard money loans; a lot goes into securing capital from these lenders. As a result, borrowers should look into using a hard money loan calculator.

Hard Money Loan Calculator 

What Is A Hard Money Loan?

A hard money loan is a specialized financing option primarily used in real estate transactions. These loans are known for their short-term timeframes and asset-based underwriting criteria. Unlike conventional loans issued by banks and traditional institutions, hard money loans are provided by individual investors or private companies.

Hard money lenders require the borrower to offer a tangible asset, usually, the property being acquired, as collateral to secure the loan. This type of loan is often utilized as a bridge loan, facilitating the financing of a property while the borrower prepares for a longer-term financial solution or awaits the sale of another property.

Key Features Of Hard Money Loans

  • Secured by Real Property: The term "hard" in hard money refers to the physical asset that secures the loan's value. In the event of a default, the lender has the right to seize the collateral to mitigate financial losses.
  • Speed and Flexibility: One of the hallmark advantages of hard money loans is the expedited approval process. The criteria for approval are generally less stringent than those of traditional loans, focusing more on the asset value than the borrower's creditworthiness. This makes hard money loans particularly appealing for transactions requiring swift execution.
  • Use Cases: Hard money loans are often seen as a financing solution of "last resort" or a strategic option for real estate investors needing immediate funds. They are prevalent in scenarios such as flipping houses, where a property is purchased, renovated, and sold within a short period, and obtaining traditional financing may not be feasible or timely.

Read Also: 9 Best Hard Money Lenders For Beginners & First-Time Investors

How Do Hard Money Loans Work?

Hard money loans assess the value of the purchased property rather than relying on the borrower's creditworthiness. Unlike traditional loans, hard money lenders prioritize the property's value and whether or not the deal the investor brings them makes any sense.

The streamlined process allows faster funding, often within days instead of weeks or months. In return for bypassing credit checks and making the money more accessible, however, these lenders will demand higher interest rates to offset the added risk.

Private individuals, investment companies, and nonbanking businesses offer hard money loans using the subject property as collateral. The loan amount is primarily based on the value of the collateral, with lenders generally providing only 60% to 80% of the asset's value to allow for potential profit in case of default.

Lenders focus on the property's estimated "after-repair value" (ARV), which signifies its potential worth after the renovation or development phase is completed; this makes hard money loans particularly suitable for house flippers or real estate developers aiming to profit by selling the property after improvements.

Read Also: Free ARV Calculator: After Repair Value Estimator

Who’s Qualified For A Hard Money Loan?

Hard money loans are asset-based sources of capital, which means the qualifications for receiving a hard money loan are primarily determined by the subject property. Hard money lenders are investors who want to make money on their loans just as much as investors want to make money on their flips. As a result, they will prioritize the deals that are most likely to provide a relatively safe return.

Private money lenders won’t ignore the qualifications of the borrowers. Instead, they will lend to anyone who can gain confidence and prove they are wise investments. Any investor who can convince the lender that their property is worth the investment may qualify for a loan.

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hard money calculator

What Is A Hard Money Loan Calculator?

A hard money loan calculator is a valuable tool that assists investors in evaluating the potential costs and repayment obligations associated with hard money loans (not to be confused with bridge loans). Hard money calculators consider several factors when breaking down potential flip-loan costs, including the loan amount, interest rate, loan term, and any applicable fees, to provide an estimated overview of the overall loan expenses.

Investors can obtain an approximation of their monthly payments, interest charges, and the total costs associated with the loan by simply entering the relevant variables into a hard money loan calculator. The calculation can help compare different loan options or assess the viability of a specific investment.

Read Also:  Home Appreciation Calculator: How To Estimate Your Home Value In 5 Steps 

How Is A Hard Money Loan Calculated?

Here's a step-by-step guide on how a hard money loan is calculated:

  1. Determine The Property's Value: Before using the calculator, determine the home’s purchase price; this can be achieved by obtaining a professional appraisal or researching nearby real estate comps. If, for example, the property is appraised at $200,000, that value will serve as the foundation for the rest of the calculation.
  2. Define The Loan-To-Value (LTV) Ratio: The LTV ratio indicates the portion of the property's value that the hard money lender is willing to finance, usually ranging from 60% to 80%. For example, with a 70% LTV ratio, the lender will provide a loan equal to 70% of the property's value. In this case, that would be $140,000 based on the property's value.
  3. Determine The Loan-To-Cost (LTC) Ratio: The LTC ratio considers the complete project cost, encompassing acquisition, renovation, and related expenses. It signifies the percentage of the project cost the lender is willing to fund. For example, if the LTC ratio is 90% and the total project cost is estimated at $250,000, the lender would grant a loan amount of $225,000.
  4. Enter The Loan Amount, Interest Rate, & Loan Term: Using the hard money loan calculator, enter the loan amount based on LTV or LTC ratios. Input the lender's interest rate, typically higher due to the short-term and higher-risk nature of hard money loans. Specify the desired loan term, typically in months.
  5. Consider Additional Fees: If applicable, include fees like origination or appraisal fees in the calculator to obtain a precise estimate of the total loan cost for hard money loans.
  6. Review The Results: Once the required details are entered into the hard money loan calculator, it will estimate the monthly payment, total interest charges, and overall loan costs. This assessment offers clarity on financial obligations and aids in evaluating the loan for an impending investment.

Please remember that hard money loan calculations are estimates and can differ based on the lender and individual circumstances. For precise and personalized information, consult a trustworthy hard money lender who can provide accurate details tailored to your loan needs.

Read Also: Estimating Rehab Costs: 5-Step Guide For House Flippers & Investors

What Are The Typical Terms For Hard Money Loans?

Due to the higher risk associated with hard money loans, their interest rates are generally higher than those of conventional loans, ranging from 8% to 15%. Points, which are a percentage of the total loan amount, can typically range from 2% to 4%. It's important to note that the specific lender and loan-to-value ratio can significantly impact the interest rates and points offered.

Repayment periods for hard money loans usually range from 12 to 36 months, but most investors will aim to repay the loan as soon as possible. This shorter duration aligns with the nature of hard money loans, which are better suited for short-term real estate investment deals rather than home purchases. 

The terms for hard money loans can vary among lenders and regions. Interest rates and points charged by hard money lenders are influenced by lender competition and perceived loan risk. Increased competition may lead to lower interest rates in certain areas with a high concentration of hard money lending firms.

What Is The Interest Rate For Hard Money Loans?

Hard money loans commonly have higher interest rates, ranging from 8% to 15%.

Today’s hard money loans have no universal interest rate. Like their institutional counterparts, hard money loans will adjust their rates based on the assets they are funding and the borrower’s experience.

While hard money loans will vary their interest rates based on several factors, most rates will fit within an established range.

The probability of default may be higher for these loans due to more lenient lending requirements, resulting in the lender charging higher interest rates to compensate for the increased risk.

How Is Hard Money Loan Interest Calculated?

Hard money lenders determine interest rates based on factors like loan risk, LTV ratio, borrower's experience, property condition and location, and market conditions. These short-term loans may also consider things like property insurance, property taxes, net profits, rehab costs, closing costs, cash flow, the value of the property, turnaround time, and underwriting.

Interest rates are generally higher than traditional loans due to the short-term nature, increased risk, and inability to refinance. Each lender assesses these factors to determine specific interest rates differently, however, resulting in significant variances.

How To Calculate Points On A Hard Money Loan?

Hard money lenders assess points as a percentage of the loan amount, representing upfront fees paid by borrowers. The percentage varies based on lender policies, the LTV ratio, the borrower's creditworthiness, and loan risk. Typically, one point equals 1% of the loan amount.

For instance, a $100,000 loan would have a $1,000 point. Points enable lenders to generate upfront income and offset the risks of hard money lending. 

What Is The Difference Between A Hard Money Loan & A Traditional Loan?

When comparing hard money loans to traditional loans, there are notable differences. Firstly, the time frame for obtaining a hard money loan is shorter, typically a few days to a few weeks, while traditional loans take longer to process and compound monthly interest.

Secondly, hard money loans prioritize property value and project plans rather than strict borrower financial criteria like credit scores. In contrast, traditional loans require extensive documentation, good credit scores, income verification, and a down payment.

Another distinction is the property type. Traditional mortgages are ideal for owner-occupied residential properties, while hard money loans are more suited for commercial and non-owner-occupied properties, including fix-and-flip projects.

Furthermore, hard money loans generally carry higher interest rates due to their short-term nature and the associated risk of distressed properties. Conversely, traditional loans offer lower rates and better interest costs, especially for borrowers with good credit scores and a larger down payment.

Overall, hard money loans offer faster financing options with fewer borrower qualifications, making them suitable for investment properties. On the other hand, traditional loans have longer repayment terms, a loan origination fee, a stricter approval process, and lower interest rates, and are a better fit for owner-occupied residential properties.

hard money lender calculator

How To Get A Hard Money Loan 

Securing a hard money loan is a strategic option for real estate investors and individuals seeking rapid, asset-based financing. If you've assessed your financial position, have a substantial down payment ready, and decided that a hard money loan aligns with your investment goals, here's a step-by-step guide to acquiring a hard money loan:

Finding A Hard Money Lender

Your journey begins with locating a credible lender. Here are effective strategies to identify a hard money lender suited to your needs:

  • Leverage Referrals: Utilize your network within the real estate sector. Contacts such as real estate agents, settlement agents, or real estate attorneys often have established relationships with hard money lenders and can provide valuable referrals.
  • Consult with Title Offices: Title offices frequently interact with hard money lenders for loan recordings. They can offer insights and referrals to lenders who are active in your investment area.
  • Online Research: The internet is a vast resource for finding lenders. A diligent search can yield a list of hard money lenders offering loans in your locality.

Read Also: Kiavi Hard Money Lending & Funding Review

Application Process

Once you've identified potential lenders, the application process entails several critical steps:

  • Prepare Documentation: Organize all necessary documentation, including personal identification, proof of income, bank statements, and documentation for any other assets or accounts. This preparation can streamline the application process.
  • Plan for Repayment: Given the short-term nature of hard money loans, having a clear repayment strategy is essential. Whether it's through refinancing, selling the property, or another exit strategy, lenders will want to know your plan.
  • Compare Lender Offers: Don't settle for the first offer you receive. It's advisable to compare terms from multiple lenders. Focus on the interest rates, fees, and the Annual Percentage Rate (APR) to understand the total cost of the loan.
  • Engage and Apply: Reach out to your chosen lender to initiate the application. Be prepared to answer questions and provide any additional information or documentation they require.

Evaluation & Approval

Hard money lenders will evaluate your proposal based on the value of the collateral (the property) and your repayment strategy. Unlike traditional loans, your credit history may play a less significant role. However, lenders will still assess financial stability and the feasibility of your plan to ensure the loan can be repaid within the stipulated term.

Finalizing The Loan

Upon approval, review the loan agreement carefully. Ensure you understand all terms, including repayment schedule, interest rates, fees, and any clauses related to early repayment or defaults. Once you're confident with the terms, you can proceed to finalize the loan.

Hard Money Loan Calculations: Pros & Cons

Hard money loan calculators have helped many borrowers understand the intricacies of these alternative financing options.

However, like every source of capital, borrowers need to know what they are getting into; the best way to do that is to look at the pros and cons of hard money loan calculations.

Pros Of Using A Hard Money Calculator

The pros of using a hard money loan calculator include but are not limited to:

  • Financial Planning Assistance: A hard money loan calculator estimates potential costs, monthly payments, and overall expenses tied to the loan; this empowers borrowers to plan their finances effectively and make the best decisions for their investment properties.
  • Effective Comparison Tool: By inputting different loan scenarios, borrowers can utilize the calculator to compare various loan options; this allows them to assess the viability of each option, facilitating more capital-efficient deals.
  • Convenience: Calculating loan details manually can be time-consuming and complicated. A hard money loan calculator automates calculations, saving borrowers time and effort.

Cons Of Using A Hard Money Calculator

The cons of using a hard money loan calculator include but are not limited to:

  • Potential Inaccuracy: While a hard money loan calculator provides estimates, it may not capture individual lenders' precise terms and costs. Factors such as lender-specific fees, varying interest rates, and unique loan terms may not be fully reflected in the calculator's results.
  • Lack Of Customization: Hard money loan calculators typically operate on standardized formulas and assumptions. They may not consider the borrower's specific circumstances or accommodate deviations from standard parameters in loan terms. As a result, the calculator's results may only partially align with the borrower's actual situation.
  • Dependence On Input Accuracy: The accuracy of the calculator's output heavily relies on the accuracy and completeness of the input data provided by the borrower. If incorrect or incomplete information is entered, the calculator's results may be misleading or inaccurate. 

Final Thoughts On Hard Money Loan Calculators

A hard money loan calculator empowers borrowers to make better choices by estimating costs, comparing loan options, and gaining valuable insights into their impending deals. While it serves as a helpful tool, it is crucial to supplement the calculator's results with personalized guidance from industry experts who can provide specific advice and navigate the nuances of hard money lending.

At Real Estate Skills, our team of experts is ready to provide you with the tools you need to make hard money loan calculations. We're committed to providing the knowledge, resources, and support you need to secure the best loan possible. So avoid common mistakes and maximize your loans by leveraging our expertise.


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