A hard money loan is a short term real estate loan used by house flippers to purchase and renovate properties. A hard money lender provides the capital the investor needs to purchase the property, complete high ROI renovations, and thereby increase the after repair value of the home.

Crucially, the real estate investor is required to pay back the full loan amount at the end of the loan terms (up to 18 months with New Silver). Usually, the funds from the sale of the house are used to pay back the full loan amount.

New Silver provides up to 90% Loan-to-Cost, and up to 100% construction financing, meaning that the house flipper is responsible for covering the remaining share of the purchase cost.

For a hard money loan to work successfully, the after repair value of the property must be substantially more than the original purchase price.

In addition, it's also worth clarifying that there are several different types of hard money loans, including:

• Fix and Flip Loans
• Rental Loans
• Construction Loans

New Silver's Fix and Flip loans offer interest-only repayment terms, with rates from 8.5 – 11%. For example, if you were offered a $200,000 loan at a 10% interest rate, your monthly payment would work out to $1,666.66. Here's how it works:

• Amount Borrowed: $200,000
• Annual Interest Rate: 10%
• Monthly Repayment: Amount Borrowed * Annual Interest Rate / 12
• Monthly Repayment: $200,000 * 10% / 12
• Monthly Payments: $1,666.66

In other words, your monthly payment only covers the interest portion of the capital that was borrowed. However, you are required to pay back all the capital that was borrowed when the loan expires.

It helps to think of it as a balloon payment, but instead of paying a portion of the capital back, your balloon payment covers 100% of the amount borrowed.

Fix and Flip loan monthly payments only cover the interest portion of the loan. This means that with each monthly payment, you don't make a dent in the total capital that was borrowed. Instead, the expectation is that you will pay back 100% of the capital when the loan term (up to 18 months) comes to an end.

For example, let's imagine you applied for financing to the value of $150,000, with an interest rate of 10% and a loan term of 6 months. In this case you would pay:

• Month 1: $1,250 ($150,000 * 10% / 12)
• Month 2: $1,250
• Month 3: $1,250
• Month 4: $1,250
• Month 5: $1,250
• Month 6: $1,250
• End of the loan: $150,000

As you can see from the example above, you only pay off the interest portion of the loan each month. You repay the full capital amount when the loan expires, using the funds from the sale of the house that was flipped to do so.

Apart from the interest-only structure, this is one of the main ways in which hard money loans differ from traditional loans. With a traditional loan, the monthly payment is a mixture of the interest owed and the outstanding capital amount. This is what allows the borrower to pay off their entire mortgage over time. When the loan comes to an end, there is no more capital to pay off.

This traditional financing approach doesn't work for house flippers, because of the cash flow challenges that it would introduce. A short term loan solution like New Silver's is built for investors who need to execute a real estate deal quickly.

New Silver's Fix and Flip loan rates range from 8.5% to 11%, depending on the borrower's creditworthiness and the amount of house flipping experience the investor has.

Generally speaking, the better your credit history and the more house flipping experience you have, the lower the rate offered.

New Silver finances up to 90% of the project's Loan-to-Cost, with construction financing available up to 100%. This means the down payment required is typically as little as 10% of the total project cost, depending on the specific deal structure.

New Silver requires a minimum FICO score of 650 to qualify for a Fix and Flip loan.

If you plan to keep the home and rent it out afterward, credit score requirements may be a little higher, since that shifts the loan into DSCR/rental territory.

While the interest rates on traditional loans are typically lower, the approval process is far more stringent and time-consuming. This can be a dealbreaker when you spot a fix and flip opportunity that requires moving swiftly. That's why a lender like New Silver can be so useful to investors. Effectively you get:

• Flexible loan terms
• Easy loan applications
• Less stringent financial requirements
• Speedy approval and closing
• Instant proof of funds

New Silver's origination fee for Fix and Flip loans ranges from 1 – 1.75% of the loan amount. It's the expense that covers the costs associated with initiating the loan.

So, if your loan amount is $200,000 and the origination fee is 1%, that would result in a cost of $2,000.