Hard Money Loan Calculator

Hard money loan calculator to calculate the costs and profit of investing in real estate fix and flip. Use the fix and flop calculator to estimate how much you can make on a property deal.

What is a hard money loan?

Hard money loans are short-term secured loans used to finance real estate transactions for the purpose of fixing and flipping houses. A hard money loan uses a property as collateral and is often issued not by the bank, but by individuals and companies. Hard money loans usually last anywhere from 1 to 5 years and are often negotiable between the lender and the borrower. The requirement for a hard money loan is not as strict as a standard mortgage, because borrowers use their own home as collateral. In case of default, the lender is happy to take control of the borrower's property. Borrowers use a hard money loan as means to get quick cash because the approval time is much shorter, but it usually comes with a higher interest rate than a regular mortgage.

How do hard money loans work?

Since a hard money loan uses the borrower's home as collateral, the value of the home is more important than the borrower's credit score. The borrower must have good equity in their home, preferably with a low debt to income ratio or DTI. The approval process for a hard money loan is fast when compared to a traditional loan. Once the borrower is approved for the loan, they can get cash in a matter of days instead of a few weeks or longer. The downside of hard money loans is they are viewed as risky loans by lenders, and therefore the costs of issuing a hard money loan are much higher. Borrowers need to pay a higher loan origination fee with a higher interest rate.

What are hard money loans used for?

There are many use cases for hard money loans. Following are a few reasons why borrowers get hard money loans.

• Fix and Flip House - Many real estate investors use hard money loans to fix and flip houses to make a profit. For these investors, they want to buy a property and sell it within a very short time period, it doesn't make sense for them to go through the bank for a traditional mortgage where the approval process takes much longer. They don't mind paying high interest or upfront costs as they can recoup their investments quickly when they find an undervalued property. If they go through the traditional mortgage route, they may save some money, but they lose time value, and they may not be able to buy as many properties as they wanted to.


• Financed for a new house - If a buyer found a new house, but he doesn't have money for a down payment until he sells his current home. He may use a hard money loan to cover closing costs and down payment for the new house. Once he sells the house he lives in, then he can use the proceeds to pay off the hard money loan.


• Investment or Commercial Property - Real estate investors may use hard money loans to buy an investment or commercial property. They may not qualify for a traditional mortgage or the mortgage amount they get from a bank is not enough to buy the property. That's when they use a hard money loan to get more funding for their next property.

Are hard money loans worth it?

Hard money loans are risky as they are costly and the interest rate is high. Borrowers could get into trouble and risk losing their own if they fail to make payments to repay the hard money loans. Whether hard money loans are worth it is really an individual decision. If you are an experienced real estate investor that is in the business of flipping houses or investing in properties for a living, then yes hard money loans are worth it if there are no better options available. However, if you are an individual and have never invested in real estate, it is best to stay away from a hard money loan.