Hard Money Loan for Fix and Flip

Oakland, California
Mortgage Brokers & Lenders
2yFollow

Hard Money Loan for Fix and Flip

Choon Yee Dee
Member since 2023 · 24 posts · 15 votes

Hello everyone!

I have a quick clarification question regarding hard money loans for fix and flips. If for example, for a 12 months hard money loan, if I fix and flip a home in 6 months, am I only paying for 6 months of interest? Or am I paying for 12 months of interest?

This is given that there is no prepayment penalty.


Thanks in advance!

1Reply
137 views

Most Popular Reply

Bryan MartinezBusiness Member
Lender · Austin, TX · Member since 2019 · 22 posts · 6 votes
2y

Chis Had a good point, some have a minimum  3-6 month interest charge. Always good to ask your lender. Always ask questions, lots of them. I invest myself and I lend. So I know both sides. Always happy to help or point you in the right  direction if you ever want to chat. 

[email protected]737-217-1592
IMS Funding57 Reviews
WebsiteView Page
2Reply
See this reply in the discussion

17 Replies

Jump to latestLatest
  • Bryan MartinezBusiness Member
    Lender · Austin, TX · Member since 2019 · 22 posts · 6 votes
    2y

    As soon as your refi or sell it, you will not pay any more interest at that point. 

    [email protected]737-217-1592
    IMS Funding57 Reviews
    WebsiteView Page
    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y

    @Choon Yee Dee

    If no prepayment then only six months.

    7e investments53 Reviews
    WebsiteView Page
    0Reply
  • Choon Yee Dee
    OP
    Member since 2023 · 24 posts · 15 votes
    2y
    Quote from @Bryan Martinez:

    As soon as your refi or sell it, you will not pay any more interest at that point. 


    Thank you Bryan for the clarification!

    0Reply
  • Choon Yee Dee
    OP
    Member since 2023 · 24 posts · 15 votes
    2y
    Quote from @Chris Seveney:

    @Choon Yee Dee

    If no prepayment then only six months.

    Thank you Chris, for the clarification! Appreciate it!
    0Reply
  • Bryan MartinezBusiness Member
    Lender · Austin, TX · Member since 2019 · 22 posts · 6 votes
    2y

    Chis Had a good point, some have a minimum  3-6 month interest charge. Always good to ask your lender. Always ask questions, lots of them. I invest myself and I lend. So I know both sides. Always happy to help or point you in the right  direction if you ever want to chat. 

    [email protected]737-217-1592
    IMS Funding57 Reviews
    WebsiteView Page
    2Reply
  • Choon Yee Dee
    OP
    Member since 2023 · 24 posts · 15 votes
    2y
    Quote from @Bryan Martinez:

    Chis Had a good point, some have a minimum  3-6 month interest charge. Always good to ask your lender. Always ask questions, lots of them. I invest myself and I lend. So I know both sides. Always happy to help or point you in the right  direction if you ever want to chat. 


     Gotcha! Thank you for the heads up!

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y
    Quote from @Choon Yee Dee:
    Quote from @Bryan Martinez:

    Chis Had a good point, some have a minimum  3-6 month interest charge. Always good to ask your lender. Always ask questions, lots of them. I invest myself and I lend. So I know both sides. Always happy to help or point you in the right  direction if you ever want to chat. 


     Gotcha! Thank you for the heads up!


     Yes for example we have (depending on loan) min. 6-9 months required. so even if they sell it prior they still pay interest for that period.

    7e investments53 Reviews
    WebsiteView Page
    0Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    2y
    Quote from @Choon Yee Dee:

    Hello everyone!

    I have a quick clarification question regarding hard money loans for fix and flips. If for example, for a 12 months hard money loan, if I fix and flip a home in 6 months, am I only paying for 6 months of interest? Or am I paying for 12 months of interest?

    This is given that there is no prepayment penalty.


    Thanks in advance!

    This will depend on the Hard Money Lender's terms. If they have a PPP many will require at least 6 months of interest payments so if you payoff the loan on month 3, you will owe the remaining 3 months at closing. Others do not have a penalty at all for early payoff. 

    [email protected]818-269-7983
    LuxePrivate Investments LLC 572 Reviews
    WebsiteView Page
    0Reply
  • Ryan Davies
    Investor · Salt Lake City, UT · Member since 2019 · 339 posts · 126 votes
    2y

    Depends on the lender but its usually interest only for as long as you have the loan. 

    • Rates: 9% to 13% (Most Deals are 11-12%)
    • Terms: up to 36 Months (Most Deals are 6-12 months)
    • Fees: 2-4 points(%) of loan amount paid at closing (Most Deals are 3 points(%))
    • Minimum Loan Amount: $50,000 (For loans less than $250,000 $2,500 minimum fee)
    • Max Loan: 65%-70% of After Repair Value(ARV)
    • 100% Rehab Financing Available (Require 20% of purchase price down payment or cross-collateral)
    • Closing Timeframe: 48 Hours - 3 Weeks (Most Deals are 2 Weeks)
    • NO PRIMARY RESIDENCES, NON-OWNER OCCUPIED ONLY, BUSINESS AND COMMERCIAL USE ONLY.
    0Reply
  • Mike Klarman
    Specialist · NJ · Member since 2022 · 1k+ posts · 656 votes
    2y

    You are paying a monthly payment as long as the loan stays open.  Once sold, the loan is paid off.

    0Reply
  • Choon Yee Dee
    OP
    Member since 2023 · 24 posts · 15 votes
    2y
    Quote from @Chris Seveney:
    Quote from @Choon Yee Dee:
    Quote from @Bryan Martinez:

    Chis Had a good point, some have a minimum  3-6 month interest charge. Always good to ask your lender. Always ask questions, lots of them. I invest myself and I lend. So I know both sides. Always happy to help or point you in the right  direction if you ever want to chat. 


     Gotcha! Thank you for the heads up!


     Yes for example we have (depending on loan) min. 6-9 months required. so even if they sell it prior they still pay interest for that period.


     Oh I see, thanks for the example Chris. I'll be sure to inquire about that.

    0Reply
  • Choon Yee Dee
    OP
    Member since 2023 · 24 posts · 15 votes
    2y
    Quote from @Ryan Davies:

    Depends on the lender but its usually interest only for as long as you have the loan. 

    • Rates: 9% to 13% (Most Deals are 11-12%)
    • Terms: up to 36 Months (Most Deals are 6-12 months)
    • Fees: 2-4 points(%) of loan amount paid at closing (Most Deals are 3 points(%))
    • Minimum Loan Amount: $50,000 (For loans less than $250,000 $2,500 minimum fee)
    • Max Loan: 65%-70% of After Repair Value(ARV)
    • 100% Rehab Financing Available (Require 20% of purchase price down payment or cross-collateral)
    • Closing Timeframe: 48 Hours - 3 Weeks (Most Deals are 2 Weeks)
    • NO PRIMARY RESIDENCES, NON-OWNER OCCUPIED ONLY, BUSINESS AND COMMERCIAL USE ONLY.

     Thank you Ryan for displaying the requirements! Very helpful!

    0Reply
  • Eric Williams
    Investor · Houston · Member since 2020 · 26 posts · 8 votes
    2y

    Other hidden costs you need to consider when evaluating HM lenders:

    -Applications Fees

    -Administrative Fees,

    -Commitment Fees

    -Underwriting Fees

    -Origination Fees

    -Loan Servicing

    -Rehab Draw Fees

    -Inspection Fees

    -Interest paid on undrawn rehab budget?

    -Loan Extension Fees

    -Early Payment Penalties

    Lots of good advice from everyone else above, but wanted to add this as if you can find a lender that minimizes these extra charges that can make a big difference

    0Reply
  • Stacy RaskinBusiness Member
    Lender · Member since 2022 · 1k+ posts · 516 votes
    2y

    Lenders have different terms. There are some who have prepayment penalties. Some that don't. There are some that don't charge interest on the money for the rehab until you're reimbursed from the lender on it.

    There are other lending guidelines out there such as: 

    • -Any level of investor experience
    • -Funding in as little as 10 days
    • -Credit scores as low as 640
    • -Non-owner occupied Single Family, Multi Family up to 4 units property types
    • -Purchase Loan Amount – up to 90% of Cost (depends on area you're purchasing and if you have a higher credit score)
    • -Rehab Loan Amount – up to 100% of Cost
    • -75% maximum after repair value
    • -12 to 24 month loan term with Interest Only payments. At the end of term, can either sell or refinance into a longer term fixed DSCR rental property loan. This can be done earlier as well if the property is ready before the term is up.

    Happy to connect to discuss further. 

    [email protected]818-770-0340
    Bright Skyline518 Reviews
    WebsiteView Page
    0Reply
  • Colin McMahon
    Lender · Miami · Member since 2022 · 99 posts · 18 votes
    2y

    As long as there is no pre-payment penalty you only pay the interest for as long as you have the loan. It is really important to make sure you fully understand the loan terms, pre-payment penalty, and points being charged when doing a hard money loan! 

    0Reply
  • Bob S.
    Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
    2y
    Quote from @Choon Yee Dee:

    Hello everyone!

    I have a quick clarification question regarding hard money loans for fix and flips. If for example, for a 12 months hard money loan, if I fix and flip a home in 6 months, am I only paying for 6 months of interest? Or am I paying for 12 months of interest?

    This is given that there is no prepayment penalty.


    Thanks in advance!


     Min 6 months, 

    0Reply
  • Choon Yee Dee
    OP
    Member since 2023 · 24 posts · 15 votes
    2y
    Quote from @Eric Williams:

    Thanks Eric for listing all those fees! Really appreciate it. I will inquire about those.

    Other hidden costs you need to consider when evaluating HM lenders:

    -Applications Fees

    -Administrative Fees,

    -Commitment Fees

    -Underwriting Fees

    -Origination Fees

    -Loan Servicing

    -Rehab Draw Fees

    -Inspection Fees

    -Interest paid on undrawn rehab budget?

    -Loan Extension Fees

    -Early Payment Penalties

    Lots of good advice from everyone else above, but wanted to add this as if you can find a lender that minimizes these extra charges that can make a big difference


    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free