Rolling Brook Funding makes a loan to Laverne for a rehab project in Wyandotte, MI, on a house that is listed for $360,000. The loan-to-value (LTV) on the note is 85%. This means Laverne will have to bring 15% of the sales price to closing and the principle will be $306,000 on the note. The terms of the loan dictate a 9% note for 6 months. They also require a 1 point origination fee, which will also be paid at closing.
According to the parameters of the loan, Laverne will need to contribute a $3,060 origination fee plus 15% of the sales price, or $54,000, based on the 85% LTV. Once the loan closes, she will need to pay the lender $2,295 in monthly interest fees, or 9% multiplied by $306,000 divided by 12 months in the year. If Laverne sells the remodeled project for $540,000 at the end of the 6 month term, her total profit (not accounting for renovation expenses) would be $163,170. This is computed by taking the purchase price ($540,000) and subtracting the original principle ($306,000), the origination fee ($3,060), the cash she brought to closing ($54,000), and the total interest expenses ($13,770).