Pay a hard money loan

[Tim Matthews]

Hello, all.

I have been pondering many ways on funding a purchase when I get ready to begin buying rental properties next year in the Chicago area. One thing I can't seem to find an answer for (because it may depend on the lender) is how payments work on a hard money loan. As the borrower, what I mainly want to know is if I have to make monthly payments on the loan. How does repayment work on the loan? 

[David Chappell]

Depending on who it is, but some hard money lenders will lend 75% of the ARV and up to 100% of purchase price and 100% rehab price. So say, you want to buy a property that has an ARV of $150k. They would loan up to 75% or $112,500. But thats not accounting for any points. For example they may charge a 4% origination fee, that you would have to pay for upfront. So they may loan you $112,500 but you have to pay (3%) $3,375 out of pocket for the origination fee to the HML. There are also other costs such as appraisal fees, title insurance, etc that you will have to pay up front. Once that is taken care of, most HML set you up on 6/9/12 month interest only loans, and those usually start at 10% interest rates. So on a $112k loan, you would pay $933 in interest only payments for 6 months and then at the end of that 6 months, you would owe the original $112k that you borrowed. You can always ask for an extension, but sometimes they will charge another point or so for that. Hope this helps!