Hard Money Loan Calculator

What is a Hard Money Loan?

A hard money loan is a short-term loan secured by real estate. Unlike traditional bank loans that are approved based on a borrower’s credit score and income, hard money loans are asset-based, meaning the lender’s primary concern is the value of the property being used as collateral. These loans are typically funded by private investors or companies, not banks, and are most commonly used by real estate investors for short-term projects like house flips or construction. Our Hard Money Loan Calculator is specifically designed to help investors quickly calculate the costs associated with this type of financing.

Key Features of a Hard Money Loan

Hard money loans are very different from the 30-year mortgage you might get for your primary residence. Here are the key features you’ll find in our Hard Money Loan Calculator:

• Short Terms: Loan terms are typically very short, ranging from 6 months to a few years.
• Higher Interest Rates: Because they are higher risk and funded by private money, interest rates are significantly higher than traditional loans, often in the 8-15% range.
• Interest-Only Payments: Most hard money loans require interest-only payments during the loan term. This keeps the monthly payment low, but the principal balance does not decrease.
• Origination Points: Lenders charge upfront fees called “points,” where one point equals 1% of the loan amount. It’s common to see fees of 1-5 points.
• Balloon Payment: At the end of the loan term, the entire original loan amount (the principal) is due in one large, final payment.

When Does a Hard Money Loan Make Sense?

While expensive, hard money loans are a valuable tool for real estate investors in specific situations where speed and flexibility are more important than cost:

• House Flipping: An investor who plans to buy, renovate, and sell a property within a year can use a hard money loan to secure the property quickly.
• Land Development: Developers can use these loans to purchase land and get a project started before securing long-term financing.
• Bridging a Gap: As a type of bridge loan, it can help an investor purchase a new property before they have sold an existing one.
• Poor Credit or Income History: Because the loan is based on the asset’s value, investors with less-than-perfect credit may still be able to qualify.