Understanding the True Cost of Hard Money Loans

[Kenny Lincoln]

Hello BP, I feel as though this might be a stupid question but I'm trying to get a better understanding of the true costs associated with hard money loans for educational purposes. 

1. Do HML typically require a down payment in addition to the points being charged to get the loan in the first place?

2. If my up front costs are $50k to get a loan in the first place (down payment and points), is this amount in addition to the purchase/rehab costs or go towards the purchase/rehab costs? Example - Not including monthly interest payments and carry costs, would my total cost be $250k if the purchase/rehab costs were $250k or $300k if you have to put up $50k to get the loan in the first place? 

Another way to think of it is what happens to the down payment? Does the down payment go directly to the seller and come off the purchase price or does the HML keep the down payment themselves in order to give the loan in the first place?

I'm trying to learn how this works to study the profitability of various investments. I want to know exactly how much of the sales revenue goes back to pay the original purchase/rehab loan off, plus any down payment, plus any carry costs, plus any other costs ...

It doesn't make sense to me that a HML would be willing to give so much money on a deal when they are only getting the upfront points being charged and monthly interest payments. I would think the HML would keep the down payment as well in order to give you the loan in the first place.