How to Calculate Financing Costs

What Are Financing Costs?

Financing Costs are costs you incur if you are getting outside funding to fund the purchase and/or repairs for your rehab projects.  Financing Costs include Loan Interest Payments, Points & miscellaneous loan fees.

What Are Typical Financing Costs & Amounts?

Typical Financing CostsHere's a list of typical Financing Costs and average amounts that you will likely have on your rehab projects.

  1. Interest Payments (7 to 15% Interest during Holding Period) - Your interest rate will vary widely depending on the type of financing, (hard money, private, conventional), and your individual financial situation.  Click here to learn more about Loans for Flipping Houses
  2. Points (2 to 3% of the Loan Amount) - Again, depends on the lender, but you should expect to pay a few % points upfront.
  3. Other Closing Costs ($750 to $2,000) - The Lender will also likely charge ridiculously inflated junk fees for miscellaneous items. Loan Origination Fee, Appraisal Fees, Underwriting Fees, Credit Report Fees, Processing Fees
  4. Rehab Draw Inspections ($100 to $200 per inspection) - Your rehab loan will be divvied up into a 'loan draws'.  When you request a loan draw payment, the Lender sends a 3rd-Party Inspector to inspect the property to ensure the project is ready to receive the next loan draw payment.
<span class="lesson-quote--tag orange">WARNING</span>
<p>Make Sure You Ask To See Your Lender's Fee Schedule Upfront, So You Can Factor All Of The Financing Costs Into Your Analysis And Prevent Any Surprises At Closing.</p>

Financing Costs Example

In this example, a rehabber purchased a property for $100,000, that needs $50,000 in repairs and is planning on reselling the property for $200,000.  The rehab is scheduled to take 5 months to complete, but the lender requires a minimum of 6 months of payments.

The Hard Money Lender will lend up to 70% of the ARV with a 12% interest rate, 2% points upfront, with $1000 in origination fees, plus 4 rehab draw inspections of $150 each.

Loan Amount = ARV x % of ARV
Loan Amount = $200,000 x 70%
Loan Amount = $140,000

Monthly Interest Payment = (Loan Amount x Annual Interest Rate) / 12 Months per Year
Monthly Interest Payment = ($140,000 x .12) / 12
Monthly Interest Payment = $1,400

Total Interest Payments = Monthly Interest Payment x Loan Term
Total Interest Payments = $1,400 x 6 months
Total Interest Payments = $8,400

Loan Points = Loan Amount x Points %
Loan Points = $140,000 x .02
Loan Points = $2,800

Rehab Draw Inspections = Draw Inspection Amount x # of Inspections
Rehab Draw Inspections = $150 x 4
Rehab Draw Inspections = $600

    <table id="costs"> <tbody><tr> <th style="width: 50%;">Financing Costs</th> <th style="width: 25%;"></th> <th style="width: 25%;">Amount</th> </tr> <tr> <td>Interest Payments (6 Payments)</td> <td>$1,400/mo</td> <td>8,400</td> </tr> <tr> <td>Points (2% of Loan)</td> <td></td> <td>$2,800</td> </tr> <tr> <td>Other Closing Costs</td> <td></td> <td>$1,000</td> </tr> <tr> <td>Rehab Draw Inspections ($ Draws)</td> <td>$150/ea</td> <td>$600</td> </tr> <tr style="border-top: 3px double black; font-weight: bold;"> <td>Total Financing Costs</td> <td></td> <td>$12,800</td> </tr> </tbody></table>

<span class="lesson-quote--tag blue">INSIGHT</span>
<p style="margin-bottom:10px;">As You Can See From The Example Above Financing Costs Can Add Up To A Substantial Amount, So It's Important To Make Sure You Accurately Calculate The Amount Of Financing Costs That Could Be Incurred.</p>
<p style="margin-bottom:0px;">Talk To Your Local Lenders To Learn About The Lending Rates And Terms They Charge For Funding For Your Rehab Projects.</p>

House Flipping Calculator

To analyze your deals efficiently and systematically you may want to consider building your own deal analysis spreadsheet or utilizing a pre-built software like our Flipper Force software.  

Our Flipper Force software has a House Flipping Calculator tool that is pre-built with a step-by-step process to help you can calculate your Buying Costs, Holding Costs, Selling Costs & Financing Costs for your projects.

Having a system in place will ensure that you don't miss any costly items in your analysis so you make the right offer for your property!

Learn more about our House Flipping Calculator