Reliance Lending Corporation issues a private money loan to Tina for a renovation project in the Plain View neighborhood of Dunn, NC, on a house that costs $190,000. The lender agrees to write a note with a 50% loan to value (LTV) so they will loan $95,000 on the property. The terms of the loan dictate a 13% note for 18 months. They also stipulate a 1 point origination fee, which will also be paid at closing.
According to the terms of the loan, Tina will have to contribute a $950 origination fee in addition to 50% of the sales price, or $95,000, based on the 50% LTV. Reliance Lending Corporation will collect $1,029 in monthly interest from the borrower. This is calculated by taking the full loan amount of $95,000, multiplying by the 13% interest rate, and then dividing that amount by 12. If she sells the remodeled project for $228,000 at the end of the 18 month term, her gross profit (not accounting for rehab costs) would be $18,525. This is calculated by taking the sales price ($228,000) and subtracting the original principle ($95,000), the origination cost ($950), the funds she brought to closing ($95,000), and the total interest payments ($18,525).