Gary is a house flipper in Clermont, FL. He discovers an older property and wants to remodel it and sell it for a profit. The property costs $220,000 but he does not have the full amount so he obtains a hard money loan with USA Finance Corporation. The loan to value (LTV) on the note is 85%. This means that Gary will bring 15% of the purchase price to the closing and the principle amount will be $187,000 on the note. The terms of the note also include a two point origination fee which will be paid at the closing and a 6 month, interest-only note with a 9% interest rate.
According to the terms of the note, Gary will have to pay a $3,740 origination fee plus 15% of the purchase price, or $33,000, based on the 85% LTV. Once the deal closes, he will have to pay the lender $1,403 in monthly interest fees, or 9% multiplied by $187,000 divided by 12 months in the year. If Gary sells the house for $264,000 after 6 months, he would then realize a gross profit of $31,845 after deducting the principle amount of $187,000, the money contributed at the close of $33,000, the origination fee of $3,740, and the aggregate interest payments of $8,415. This gross profit does not account for building costs.