Ramona is an investor in Marshfield, MA. She locates a run-down property and decides to remodel it and sell it for a profit. The property costs $310,000 but she does not have the full amount so she takes a private money loan with West Side Funding Corporation. The terms of the loan include a 60% loan to value (LTV), so she must contribute 40% of the price as cash at closing, making the principle note amount $186,000. The parameters of the loan dictate a 14% note for 6 months. They also stipulate a 3 point origination fee, which will also have to be paid when the property closes.
On top of the $5,580 origination fee, Ramona will also need to fund $124,000 of the purchase with her own money, or 40% of the purchase price. The lender will collect $2,170 in monthly interest payments from the borrower. This is computed by taking the full note amount of $186,000, multiplying that by the 14% interest rate, and then dividing that amount by 12. If Ramona accomplishes her goal of a $418,500 total sales price when the loan term expires, she would collect a gross profit of $89,900 after re-paying the principle on the note and subtracting the cash she brought to closing, the origination points, and the monthly interest payments.