Lorena closes on a $390,000 renovation project in New Britain, CT, using a hard money loan from West Shore Lending Corporation. The terms of the note include a 65% loan-to-value (LTV), so she must contribute 35% of the price as cash to closing, making the principle loan amount $253,500. The loan also has the following features: 1) a 6 month term, 2) a 8% interest-only note, and 3) a four percent origination charge.
Therefore, the borrower will need to make a $136,500 down payment in addition to paying a $10,140 origination fee. The monthly interest-only payments will then be $1,690 to the lender. If Lorena sells the property for $585,000 after 6 months, she would then make a total profit of $174,720 after subtracting the principle of $253,500, the money paid at closing of $136,500, the origination points of $10,140, and the total interest payments of $10,140. This amount doesn't account for building costs.