hard money and construction loan

[Eli Gur]

hi, i would like to know how a hard money loan  works, they give me the money for the hose and also for the construction?  and the down payment is on both? or the downpayment is only on the money for the house, and on construction they are giving 100%?.   how does the intrest rate work?     thanks for the help. 

[Kerry Boyle]

Originally posted by @Eli Gur:

Thanks for the info, let me clarify my questions. Basically, If lets say I want a loan of 200k and additional 50k for construction. Will i need to put down payment for 250k or only 200k and they will give me 100% construction without me putting down anything towards that? The 10-12% apr is for the home loan and construction? Is the APR divided by 12 months that if i pay back loan in three months i save some $$?

I am new in the field and trying to gather the most info before jumping into my first deal. 

Thank you all for the info and advice!

If a lender says they do 80% of purchase and 100% of rehab, then your down payment is 20% of purchase price.

If a lender says they do 90% LTC (Loan to cost),  then your down payment is 10% of the total cost (i.e. 10% of purchase + 10% of rehab).

Almost all lenders fall into one of these buckets, with different numbers.

As for your 10-12% APR, it typically covers the loan that is written... so you pay interest on the 80% purchase + the 100% rehab, even if they only give you 80% of the purchase at close. There are some lenders that don't have you pay interest on "undrawn funds". Check your lender for the specifics. As a newcomer to hard money - expect to pay interest on the whole loan amount.

As for saving money by completing early - check with your lender. Some lenders have a pre-payment policy, but most do not.