Callie takes a hard money loan from Number One Finance in order to renovate a house to resale in Lansing, IL. The list price of the house is $310,000. The borrower will have to fund 50% of the purchase price in cash to the closing based on a 50% loan-to-value set by the lender. This makes the loan principle from Number One Finance $155,000. The terms of the deal dictate a 12% note for 18 months. They also stipulate a 1 point origination fee, which will also be paid at closing.
Therefore, the borrower will be required to make a $155,000 down payment in addition to paying a $1,550 origination fee. The monthly interest-only payments will then be $1,550 to the lender. If Callie sells the remodeled project for $418,500 at the end of the 18 month term, her total profit (not accounting for remodeling costs) would be $79,050. This is calculated by taking the sales price ($418,500) and subtracting the principle ($155,000), the origination fee ($1,550), the funds she contributed to closing ($155,000), and the total interest payments ($27,900).