Understanding Points in Hard Money Loans: Costs and CalculationsHard Money Lending Tips for Real Estate Deals

Hard money loans are known for their speed, flexibility, and investor-friendly underwriting — but they also come with unique cost structures that differ from traditional mortgages. One of the most important elements borrowers must understand is points. These upfront fees can significantly affect your total loan cost and overall profitability, especially for fix-and-flip investors, land buyers, and short-term developers.

In this article, we break down exactly what points are, how they’re calculated, why lenders charge them, and how they impact your bottom line so you can approach your next investment deal with clarity and confidence.

What Are Points on a Hard Money Loan?

In hard money lending, points are upfront fees charged by the lender for originating and funding your loan. One point equals 1% of the total loan amount.
For example, on a $200,000 loan, one point equals $2,000.
Hard money lenders typically charge 2 to 5 points, depending on loan risk, project scope, borrower experience, and required funding speed.

Unlike interest — which accrues over time — points are paid at closing, giving lenders immediate compensation for taking on short-term, higher-risk loans.

How Are Hard Money Loan Points Calculated?

Calculating points is straightforward:
Loan Amount × Number of Points = Total Cost of Points

Example:

• Loan amount: $300,000
• Points: 3
• Calculation: $300,000 × 0.03 = $9,000 in points

However, borrowers must understand what the points apply to, because some lenders calculate points on:

• The total loan amount,
• Only the purchase price,
• Or a combination of acquisition + rehab funds.

Hard money lenders vary in their structure, so always confirm whether points are based on the entire loan, the draw schedule, or simply the initial disbursement.

The Real Cost: How Much Do Points Cost in a Hard Money Loan?

On average, hard money lenders charge:

• 2–5 points for most standard investment loans
• Higher points for riskier deals, such as raw land or heavy rehab
• Lower points for repeat borrowers or experienced investors

Here’s what different point structures look like on a $400,000 loan:

• 2 points: $8,000
• 3 points: $12,000
• 4 points: $16,000
• 5 points: $20,000

Because hard money loans are short-term — often 6 to 12 months — points make up a significant portion of the lender’s revenue.
Borrowers should evaluate total cost carefully because high points combined with higher interest rates can dramatically impact deal profitability.

Interest Rates and Fees

It’s important to note that hard money loans come at a higher cost. Expect interest rates between 8% and 15%, along with origination fees, underwriting fees, and sometimes prepayment penalties. These costs reflect the higher risk that hard money lenders take on and the speed at which they issue loans.

Why Do Lenders Charge Points? Understanding the Purpose

Hard money lenders charge points for several strategic reasons:

1. Compensation for Higher Risk

Hard money loans move fast and often fund non-traditional properties, distressed homes, or construction projects. Points compensate lenders for that increased risk.

2. Guarantee of Upfront Income

Unlike 30-year mortgages, hard money loans are short-term. Points allow lenders to earn immediate income even if the borrower repays early.

3. Coverage of Administrative Costs

Points help cover underwriting, inspections, and other admin costs.

4. Incentive for Serious Borrowers

Points discourage borrowers who are unsure or unprepared, filtering out risky applicants and ensuring only motivated investors move forward.

Overall, points keep the hard money lending model financially sustainable while allowing lenders to offer fast approvals and flexible loan options.

How Points Affect Your Overall Loan Profitability

For real estate investors, understanding the impact of points is essential for accurate ROI calculations.

1. Lower Net Profit on Fix-and-Flip Deals

If you’re flipping a home, points reduce your immediate capital and must be factored into your total project cost.

2. Higher Upfront Cash Requirement

Even though points can be financed into the loan, many lenders require them at closing, increasing your cash-to-close.

3. Points Can Still Be Worth It

Despite the cost, many investors are willing to pay points because hard money loans:

• Fund deals banks won’t touch
• Close quickly (often days instead of weeks)
• Allow investors to scale fast
• Offer opportunity for high-margin returns

Smart investors simply treat points as another line item in their deal analysis — not a deal-breaker.

Get a Transparent Quote on Your Hard Money Loan

Understanding how points work helps you avoid surprises and evaluate whether your investment will deliver the returns you expect. Hard money loans can be incredibly powerful tools when used strategically — but only when the cost structure is crystal clear.

If you want a fast, transparent, and investor-friendly quote for your next project, reach out to First Funding Investments for a detailed breakdown of points, interest, and total loan structure based on your deal.