Kristie is an investor in Louisville, KY. She finds an run-down property for sale in the Irish Hill subdivision and wants to renovate it and resell it for a profit. The house has a cost of $280,000 but she doesn't have the full amount so she takes a hard money loan with North Shore Finance Corporation. The terms of the loan include a 85% loan to value (LTV), so she must bring 15% of the price as cash to closing, making the principle loan amount $238,000. The terms of the deal dictate a 12% note for 12 months. They also require a 2 point origination fee, which will also be paid upon closing.
Kristie will need to bring $42,000 to closing (15% on the 85% loan to value), plus she will need to pay the $4,760 origination fee. After the deal is closed and Kristie takes over the property, she will need to begin making payments each month of $2,380 to the lender ($238,000 principle x 12% / 12 months). Kristie's intention is to finish the house by the end of the 12 months and resell it for $392,000. If she succeeds she will make a total profit of $78,680 ($392,000 sales price - $238,000 principle amount - $42,000 down payment - $4,760 origination points - $28,560 in total interest paid.