Hard Money Ė Not As Expensive As You Think

Hard Money Ė Not As Expensive As You Think

We've had a lot of developers call us recently to talk about construction loans for single-family homes. Theyíve traditionally gone through banks and have enjoyed rates as low as 7% for their projects. However, these days, some of those banking relationships arenít there anymore, so theyíre looking for alternatives to finance their projects. At first look, our rates of 12-14% can cause some builders sticker shock. However, once you put those rates into perspective, they donít tend to seem so expensive after all.

Letís use the example of a $250,000 construction loan on a house that would sell for $350,000. Letís say your borrower has traditionally paid 8%, interest only, for their rate, paid 2.5 points and incurred an additional $1,500 in fees from the bank. The total cost for a six-month loan with interest and fees would be, $17,750. That would represent about 5% of their profit margin for the house for financing.

If the same loan were done through Fairfield, the rate would most likely be 13%, 5 points and about $2,295 in fees. The total cost for a six-month loan would be about $31,045. That would represent about 9% of the profit margin.

So, you can see there is only a 4% increase in the margin for using hard money. In the big picture, thatís not as large of a difference as you may have thought. This is potentially much lower than an equity partner who may want 15-50% profit participation. And, itís certainly worth considering if your borrowers are looking for alternative means to finance their construction projects.

There are other benefits as well: faster processing, less documentation (no tax forms), no pre-payment penalties, and frequently 100% cost of construction; hard money begins to look downright attractive. We encourage you to give us a call and let us price out a construction loan for you and your borrowers. The cost of using hard money is not as high as you think.

Richard Sundvall
Senior Loan Coordinator
971-227-1023 voice
503-296-2177 fax