Hard Money Terms Sheet... 12% and 2pts?

18 Replies

Howdy folks: Looking for a 2nd set of eyes on a hard money terms sheet... Can I get a few thoughts on fair value? Is this similar to what others are seeing? First experience w/ hard money.

Loan amount: $27,000

Interest Rate: 12%

Term: 3-months

Origination Points Owed by Borrower: 2 points ($540)

Monthly Payment (30 year fixed amortized): $272 ($27,000-$540=$26,460)

Points payable at payoff: 0 points ($0)

Prepayment Penalty: None

Loan Extension: 3-months

Loan Extension Points: 2 points ($540)

Most easy to find hard money lenders seems to be 10-12% with 2-4 origination points.

Depending on experience, credit, etc. is when you'll see the lesser numbers. 

I'm sure there are guys on here that pay much less, but I would say the above seems to be pretty close to the standards most are advertising. 

Doesn't seem bad.  Probably can't be too picky because, like @Chris Mason said, there's not a lot of lenders even willing to do loans this small.  

If this is for a fix and flip, I'd probably plan on paying the extra 2 points for the loan extension just to be safe because it's not likely you'll be able to do the rehab and find a buyer and close escrow all in 3 months.  It's not impossible, but chances are you're going to go over the 3 month mark.  

Originally posted by @Ryan Clements :

@Kyle J. Not a fix-n-flip. Buying a pre-foreclosure then seller finance to another buyer. Follow up question... is 30-year amortization industry standard for HML?

I haven’t seen many 30-year amortizing hard money loans. What I typically see is interest-only hard money loans, and when I’ve made private loans that is how I’ve structured them. 

 

Originally posted by @Ryan Clements :

@Kyle J. Not a fix-n-flip. Buying a pre-foreclosure then seller finance to another buyer. Follow up question... is 30-year amortization industry standard for HML?

I don't know about industry standard but we loan out 30 year fixed, fully amortized HML loans all the time. (Real 30 years, not balloon). What is not so common in the HML world is the very low loan amount you borrowed.

 

@Ryan Clements Most HML's supply shorter term loans as they typically make their money on the points/fees, not just the interest. The more times they are able to "turn" the funds in a 12 month period, the more they earn.

Additionally most HML's supply interest only loans as it is a simplified loan, and they often issue them to an entity (LLC) as opposed to an individual. This helps to qualify the loan as a loan for business purposes, not a consumer loan (consumer financing is much more regulated and restrictive pertaining to rate/fees/terms.

As others have said, lower loan amounts are difficult to get financed by HML's. Many have a floor of $100K, while some will go as low as $50K. Lower than that is even more challenging to locate and may be found more commonly in a private lending source (example: personal self-directed IRA)




Originally posted by @Kyle J. :
Originally posted by @Ryan Clements:

@Kyle J. Not a fix-n-flip. Buying a pre-foreclosure then seller finance to another buyer. Follow up question... is 30-year amortization industry standard for HML?

I haven’t seen many 30-year amortizing hard money loans. What I typically see is interest-only hard money loans, and when I’ve made private loans that is how I’ve structured them. 

 

I half expect this is not be a real lender..  no one can stay in business charging 540 dollars in loan fees ..  unless there is 3k in junk fee's which there could easily be.. most borrowers only fixate on points and interest and then when they get their settlement statement and see 2 to 3k in junk fees to the lender.. they just go with it..  NO way a lender can stay in business making those kind of loans.. a lender needs minimum 3 to 4k per file any way they can get it.. no matter how small the loan is.. this is why minimum loans are usually 75 to 100k so they can make a few bucks..  I would be very suspicious of this.. 

 

Originally posted by @Ryan Clements :

Howdy folks: Looking for a 2nd set of eyes on a hard money terms sheet... Can I get a few thoughts on fair value? Is this similar to what others are seeing? First experience w/ hard money.

Loan amount: $27,000

Interest Rate: 12%

Term: 3-months

Origination Points Owed by Borrower: 2 points ($540)

Monthly Payment (30 year fixed amortized): $272 ($27,000-$540=$26,460)

Points payable at payoff: 0 points ($0)

Prepayment Penalty: None

Loan Extension: 3-months

Loan Extension Points: 2 points ($540)

 What the heck are you going to do in 3 months ?? Not very useful

@Ryan Clements Is this hard money lender a big operation? Do you know people who have used them before with success? The only thing I would be wary of is you are getting what I would consider to be average hard money rates and points on a loan amount so low. Just make sure they are 100% legit before going forward. I have my reservations based on my experience and the numbers you provided.

@Ryan Clements As others have said, hard to believe a normal HML would even make a $27k Loan.

But.....even though you have a “30 year amortization” for monthly payments, you are paying an additional 2 points every three months (an xtra 8% per year) to renew the “three month term”.

The fact that you're getting a short term loan @ $27k for only 12% and 2 points is a win. The only negative is it's 3 a month term and you'll need to pay an additional 2 points to extend to 6. With that said, it's very hard to get a 6 month interest only loan, so it could be worth the 4 points. 

You're missing junk/ doc prep fees. I'm sure they're in there somewhere. I only have one lender that will do sub-$50k loans and they are six month terms at 5 points, 15% interest only plus $1900 in junk fees. 

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here