If I borrow from a HML who is charging 6 points for the loan and they roll everything into it including the monthly payments, do they charge the 6 points on the value of the loan including the payments (that could be a never ending calculation as each time you add the points from the ‘payments’ part of the loan it changes the total amount borrowed and so the payments increase) or to the value of the loan before the payments are added in?
Chicken before egg question! ;D
Points are deducted out of the total loan. So if you borrowed 100K, 6K would be taken out of that. Payments would also be deducted out of that, using 100K to calculate the monthly interest.
Start with your max loan amount and deduct everything off of that figure.
So if the loan is 100k, fee 6 points and APR 14%, the lender will actually be giving me 100k minus 6k minus 7k (6 months at 1,166.66) so the ‘check’ would be 87k, and at the end of the loan term I would repay the lender 100k?
Sorry if this is basic stuff for the seasoned investors who are reading, just want to be certain of everything.
That is correct for the lenders that I know of that do the hard money rehab loans.
Also remember that those figures come out first, then they will deduct out the rehab funds to put into escrow. A itemized scope of work will be given to them which will show how you plan to get to the desired arv.
The funds left over after you deduct out your cost, payments, and rehab funds are applied to the sales price. Any shortage would need to be brought into closing by you or a 2nd mortgage would be needed. Seller can sometimes hold a 2nd note for the shortgage.
Thanks, I’m slowly getting an understanding, call me anal but I hate not knowing what someone I’m dealing with already knows. I suppose it comes of getting used to being the other way round in my job (it’s me who has to know what no-one else knows - job security).
Thanks again.