Private investors or companies offer hard money loans based on real estate collateral. While these loans are perfect for people who need fast access to funds, the loan amount or tenure is generally not fixed.

Read on to learn how lenders calculate hard money loans and their tenure.

How Do Hard Money Loans Work?

To qualify for a hard money loan, you must have a property you can use as collateral. Lenders will use the property as collateral, so the property must have enough value to cover the loan amount. And while credit scores may not be the main focus for hard money lenders, they’ll still want to see that you have a clear plan for repaying the loan.

A hard money loan typically lasts around eight months to a year, but it can be shorter or longer depending on the lender’s policies and the borrower’s needs. Since these loans are riskier, you might also have to offer a down payment (10% to 30% of the property value). However, some lenders provide loans without down payments based on certain factors. It’s important to note that interest rates for hard money loans are typically higher than those for traditional loans. However, the benefits of hard money loans often outweigh the higher costs.

Factors Influencing Loan Calculations

The calculation for hard money loans can differ from traditional bank loans. Since these are collateral-based loans, lenders will start by evaluating the property’s value based on the current market value or the After Repair Value (ARV). They could also send a professional appraiser to accurately assess the property’s value.


After assessing the property value, lenders will determine the Loan-to-Value (LTV) ratio, which is the ratio of the loan amount to the property’s value. For example, if the property value is $500,000, and the lender agrees to lend you $400,000, the LTV ratio is 80%. Since the LTV ratio determines the loan amount, it’s critical to check the LTV before choosing a lender.

Interest Rates and Tenure

When choosing a hard money lender, you need to consider the interest rate and loan term. Lenders calculate the term after considering the purpose of the loan, property type, and market conditions. Some lenders prefer lending for a shorter tenure, while others prefer longer periods. Since hard money loans are high-risk, the interest rate calculations will depend on your credit score, experience, property type, and other risk factors. However, the overall interest paid could be lower than a traditional loan because you will have less time to accrue interest.

Repayment Schedule

The repayment schedule is also a critical factor that influences the loan calculation. Most hard money loans require monthly interest payments and a balloon payment at the end of the term. Balloon payments mean you repay the loan amount in full at the end of the period. Some lenders may also offer interest-only payments to reduce your monthly payment burden.

Hard money loan terms and amounts could differ from lender to lender since several factors exist. Therefore, choosing a reputed lender with transparent processes is critical to understand how your loan’s calculated. ARC Private Lending in Santa Rosa can provide fast, hassle-free hard money loans that fit your unique needs. Contact us to know more!