Victory Funding Company issues a loan to Kelly for a remodeling project in Marion, IN, on a property that is listed for $380,000. The borrower will be required to fund 35% of the sales price in cash to the closing based on a 65% loan-to-value stipulated by the lender. This makes the principle note from Victory Funding Company $247,000. The deal also includes the following features: 1) a 18 month length, 2) a 13% interest only note, and 3) a one point origination charge.
The borrower must contribute a total of $32,400 up front to pay the $133,000 down payment plus the $2,470 origination fee. After the deal is executed and Kelly takes on the property, he will have to begin making payments each month of $2,676 to the lender ($247,000 principle x 13% / 12 months). If Kelly sells the property for $475,000 after 18 months, he would make a total profit of $44,365 after subtracting the original principle of $247,000, the cash paid at closing of $133,000, the origination fee of $2,470, and the total interest payments of $48,165. This amount doesn't include rehab costs.