Hard money loans are short term asset based loans used to purchase or refinance commercial and residential properties. If you’re in the market for a hard money loan, it’s important to understand the cost and fees associated with them.
Hard Money Loan Rates
Hard money loan rates and fees will vary based on a few different factors:
- Requested Loan to Value (LTV) or Leverage
- Property Locations (Metro or Rural)
- Experience
- Type of Property
On average, a borrower can expect hard money loan rates to range anywhere from 8% to 14% APR. All loans are calculated on interest only payments, which means no payments are going towards the principle of the loan. (See example below)
» How are Hard Money Loan Rates Calculated?
For example, if a borrower borrows $600k at a 10% interest rate, their monthly payment would be $5,000/mo.
Monthly Interest Payment = ($600,000 x 10%) / 12 = $5,000.00
» What are Points on a Hard Money Loan?
Hard money lenders often charge origination fees or in other words “points” on these types of loans. Points are dependent on a number of factors included but not limited to: Requested Leverage (LTV), Property Type, and Borrower’s Experience Level. Points often vary on each transaction but you can expect points to range from 2.00%-6.00%. (See example below)
» How are Points Calculated on a Hard Money Loan?
If the same borrower from the previous example borrowed $600k and the origination fee or points was 3.00%, the cost would be $18,000.
Origination Fee or Points = ($600,000 x 3.00%) = $18,000
Closing Cost for Hard Money Loans (3rd Party Fees)
Outside of points and lender fees, there are other fees that the borrower will be responsible for. These outside costs include: Escrow, Title Insurance, Recording Fees, Appraisal as well as any other 3rd party costs associated with the transaction.
These fees will vary as it is dependent on the loan amount as well as the county of the property.
Also Read: The Basics of Bridge Loans: Everything You Need to Know
Conclusion
Hard money loans are a great solution for those looking for a quick asset based loan who are not looking to jump through conventional financing hoops. Interest rates are higher due to less strict underwriting guidelines and income documentation, relying more heavily on the equity in the property. It’s important to find a hard money lender who understands your financial and borrowing needs.
TrueBridge Loans is a California Hard Money Lender that specializes in financing commercial and residential properties. Email us or call (805) 719-7008 to see how TrueBridge Loans can help finance your next Hard Money Loan scenario!
