Paying Interest on the Interest Disbursed and Not on the Rehab Funds

Paying Interest on the Interest Disbursed and Not on the Rehab Funds that Have Not Been Used

You see a house you want to rehabilitate or sell, so you decide to make a bid. You intend to borrow through a hard money loan, but you haven't done that sort of deal yet, so if you wonder what happens next, keep reading.

House flipping has been at the peak since 2007, due to increasing home prices and increased funding supply. However, a limited amount lets flippers today make higher gains than they did after the housing crisis of 2008-2009 when foreclosures overwhelmed the real estate sector.

Lending Criteria

All lenders with hard money have distinct criteria. Some will lend an amount based on the estimated cost, while others will lend the amount reliant on the purchase price. The lender will grant you an analysis of your fees together with their terms and conditions including:

• Loan Points

• Closing Costs (Escrow Fees, Document Fees, Notary Fees)

• Interest Amount

How Much Can You Borrow?

Hard money lenders focus the total that you can borrow on the after renovation value (ARV) of the house. If a home has a value of $80,000, but the ARV is $160,000, and they will lend up to 70 percent of the ARV, only $112,000 can be lent. Upon charging the price of the property of $80,000, you will be left with $32,000 for closing costs, mortgage fees, depreciation, carrying costs, and sale expenditures such as compensation on storage, publicity, and real estate agents.

However, you may be able to bargain for the purchase of the home to pay them.