Christian takes a bridge loan from All American Funding Corporation in order to renovate a townhome to resale in Juneau, AK. The sales price of the property is $200,000. The borrower will have to contribute 30% of the purchase price in cash to closing based on a 70% loan to value stipulated by the lending company. This makes the principle amount from All American Funding Corporation $140,000. The parameters of the deal dictate a 10% note for 6 months. They also stipulate a 4 point origination fee, that will also need to be paid upon closing.
According to the terms of the loan, Christian will be required to contribute a $5,600 origination fee plus 30% of the purchase price, or $60,000, since there is a 70% LTV. The lender will collect $1,167 in monthly interest from the borrower. This is computed by taking the total note amount of $140,000, multiplying that by the 10% interest rate, and then dividing that amount by 12. If Christian sells the house for $270,000 after 6 months, he would then make a total profit of $57,400 after subtracting the original principle of $140,000, the money contributed at closing of $60,000, the origination points of $5,600, and the total interest payments of $7,000. This amount doesn't include rehab costs.