How to Compare Two Hard Money Quotes on the Same Flip: Points, Rate, Draw Fees, and Dutch Interest

What's Actually Inside a Hard Money Term Sheet

A 10% loan can cost you more than a 12% loan on the exact same flip. Take a $250,000 loan held for six months. If the 10% lender charges interest on the full balance from day one, you pay $12,500 in interest. If the 12% lender charges only on funds actually drawn, and your average outstanding balance is $195,000, you pay $11,700. The headline rate told you the wrong story before you even counted points.

Origination points are the first lever. One point equals 1% of the loan amount, paid at closing, so 2 points on $250,000 is $5,000 out of pocket before any work starts. The interest rate is the second lever, but it only means something once you know which balance it applies to. Dutch interest charges on the full loan, including rehab money still sitting in the lender's holdback. Non-Dutch interest charges only on the balance you have drawn.

Funding structure decides how much cash you bring to closing. Check the loan-to-cost limit and how it splits between purchase and rehab. One lender might fund 90% of purchase and 100% of rehab, while another caps the total at 85% of cost. Then price the draw process itself. Many lenders charge $150 to $300 per draw for inspections and wires, so a rehab released in five draws adds roughly $750 to $1,500.

The fine print holds the last two levers. A minimum-interest clause, often three to six months, means you pay that interest even if you sell in month two. Extension fees, frequently 1 point per 90 days, apply if your hold runs past the loan term. Both hit hardest when a project slips, and flips slip.

One rule ties this together: compare loans in total dollars over your expected hold, not by headline rate. For each lender, add points, interest on the balance they actually charge, draw fees, and any minimum-interest or extension cost into a single number. The lower total wins. That total is the financing cost that belongs in your deal math.

Worked Example: Lender A vs Lender B on a $300,000 ARV Flip

Take one deal and run both quotes through it. You buy at $180,000, budget $50,000 for rehab, and expect a $300,000 ARV with a 6-month hold. Both lenders fund 90% of purchase ($162,000) plus 100% of rehab, so each loan totals $212,000. The only things that change are the terms.

Lender A quotes 10% with 2 points, which costs $4,240 at closing ($212,000 x 0.02). The catch is Dutch interest. You pay interest on the full $212,000 from day one, even while $50,000 of rehab money sits in the lender's account. That works out to $212,000 x 10% x 6/12 = $10,600. Add five draws at $250 each ($1,250), and Lender A costs you $16,090.

Lender B quotes 12% with 1 point, or $2,120 upfront. Interest only accrues on money actually disbursed. The $162,000 purchase portion runs at 1% per month for 6 months, which is $9,720. The rehab funds go out in four $12,500 draws, and each one costs $125 per month once released. If those draws stay outstanding for 5, 4, 3, and 2 months, that's 14 draw-months x $125 = $1,750. Add four inspections at $150 each ($600).

• Points: $2,120
• Interest on purchase funds: $9,720
• Interest on rehab draws: $1,750
• Inspection fees: $600
• Lender B total: $14,190

The loan with the higher rate saves you $1,900. Lender A's cheaper headline rate gets wiped out by the extra point and by paying interest on $50,000 you haven't touched yet. That $1,900 goes straight to your profit, and it's roughly what a mid-range appliance package or a few days of extra holding costs would run. The lesson is to calculate total dollars over your real hold, never just the rate. Map out when each draw will actually hit, because that schedule decides how much non-Dutch interest saves you.

Folding the Winning Loan Into Your MAO and ROI

The 70% rule gives a quick ceiling: $300,000 x 0.70 = $210,000, minus $50,000 rehab, equals $160,000. That rule bundles every cost into one 30% haircut, so it can't tell you which lender is cheaper. To see the difference between two quotes, you need to build the cost stack line by line and subtract each loan's actual financing cost.

Here is the full stack for this flip:

• ARV: $300,000
• Rehab: $50,000
• Selling costs (8%): $24,000
• Buying costs: $3,600
• Non-loan holding ($1,200/month for taxes, insurance, and utilities, x 6 months): $7,200
• Target profit: $30,000

Before financing, that leaves $185,200. Subtract Lender A's $16,090 total financing cost and your MAO is $169,110. Subtract Lender B's $14,190 and it's $171,010. Picking B lets you offer $1,900 more and still hit your $30,000 profit, which can matter in a multiple-offer situation.

Now look at cash invested. Both quotes were priced on a $180,000 purchase, so 10% down is $18,000. Add $3,600 in closing costs and Lender B's points (for example, 1.5 points on a $212,000 loan is $3,180), and you bring $24,780 to the table. A $30,000 profit on $24,780 is a 121% ROI. If you also carry the $7,200 in holding costs out of pocket, cash in rises to $31,980 and ROI drops to about 94%. Use whichever version matches how you actually fund the deal.

Points and interest scale with the loan amount, and the loan amount scales with your purchase price. Once you lower your offer from $180,000 to around $171,000, rerun the financing cost once. It will shrink slightly and nudge your MAO up a few hundred dollars. One pass is enough. FlipSmrt's MAO output gives you the comp-based ARV, the county-priced rehab by trade, and the buying, holding, and selling stack already filled in. That leaves you to drop in each lender's financing number and compare the results side by side.

When the Cheaper Loan Flips: Hold Length, Extensions, and Fine Print

Lender B wins the base comparison, but only because the timeline assumed a quick exit. Rerun the same math at 9 months and Lender A costs $21,390 while Lender B costs $20,550, so B still wins by $840. Push it to 12 months and the order reverses: Lender A comes in at $26,690 and Lender B at $26,910, so A wins by $220. B's lead shrinks by about $1,060 every three months, which means its cheap upfront cost gets eaten by its heavier monthly carry somewhere past month 11.

That crossover matters because flips rarely finish on schedule. Permits stall, contractors disappear, and a listing that should sell in 30 days sits for 90. Before you pick a lender, run the comparison at your planned hold, then at your planned hold plus three months and plus six months. If the winner changes inside that range, weigh how confident you are in your timeline.

Extension fees make the gap wider. A common structure is 1 point per 3-month extension, so on a $210,000 loan each extension costs $2,100 on top of continued interest. Also read the fine print for clauses that punish a fast sale. Look for these:

• Minimum interest (for example, 3 or 6 months owed even if you pay off in month 2)
• Prepayment penalties or exit fees charged as a percentage of the loan
• Whether extensions are guaranteed or "at lender discretion"

Check how each lender caps leverage, too. An ARV-capped loan (say, 70% of ARV) can cover more of your rehab on a deal with big upside. A cost-capped loan (say, 90% of purchase and 100% of rehab) depends on what you pay, not what the house will be worth. If the rate looks attractive but the cap leaves you bringing $25,000 more cash to closing, your return on cash invested drops.

BRRRR investors need one more filter. Many refinance lenders require 6 to 12 months of seasoning before a cash-out refi based on the new appraised value. If your refi lender requires 12 months of seasoning, the short-term loan's 12-month cost is the number that counts. In this example, that makes Lender A the cheaper choice, even though Lender B looked better on paper.

Common Mistakes When Shopping Hard Money

The most expensive mistake is choosing the lender with the lowest rate. A 10% loan with 3 points can cost more than an 11% loan with 1.5 points on a short hold, because points are paid up front no matter how fast you sell. Dutch interest widens the gap even more. On a $240,000 loan with only $180,000 funded at closing, a Dutch lender charges 11% on the full $240,000 from day one, which is about $2,200 a month instead of roughly $1,650 on the drawn balance.

Investors also tend to price every quote on a 6-month hold because that is what the pro forma says. Permits in many counties take 4 to 8 weeks, and a busy contractor can easily slip another month on top of that. Run each quote at 6, 8, and 9 months before you decide. A lender with a cheap first 6 months and a 1-point extension fee can quietly become the more expensive loan at month 7.

Draw reimbursements also get overlooked. Most lenders reimburse completed work only after an inspection, and the gap between invoice and wire can run 7 to 14 days per draw. On a $60,000 rehab split across four draws, you may have $15,000 to $20,000 of your own cash floating at any given time. Ask each lender for their typical draw turnaround and their per-draw inspection fee, which often runs $150 to $300.

Then there are the fees that never make the headline quote. Underwriting ($995), doc prep ($500), processing ($400), and wire fees ($50 to $75 each, including every draw) can add $2,000 or more to one loan and almost nothing to another. Request a full fee sheet from both lenders and put every line into your comparison. If a lender will not itemize, treat that as a cost too.

Finally, many investors make the offer first and shop the loan second, which reverses the logic. Financing costs belong inside MAO alongside rehab, holding, and selling costs. A loan that costs $4,000 more than you assumed lowers the price you can safely pay by the same $4,000. Price at least two quotes before you submit, then write the offer from the number that survives.

FAQ: Hard Money Quote Comparison

Are points negotiable? Often, yes, especially once you have a few closed deals with a lender. Repeat borrowers commonly get a half point or full point shaved off, or trade a slightly higher rate for fewer points. On a $240,000 loan, dropping from 2 points to 1.5 points saves $1,200, so it is always worth asking.

What does Dutch interest mean in plain English? You pay interest on the full loan amount from day one, including rehab money the lender has not released yet. Say your $240,000 loan includes a $60,000 rehab holdback at 12%. Dutch interest costs $2,400 a month immediately, while non-Dutch interest on the $180,000 actually funded costs $1,800. That $600 monthly gap shrinks as draws come in, but it adds up on a slow rehab.

Should I pick the higher leverage loan if it costs more? Compare the extra cost against the cash it frees up. If Lender B costs $4,000 more but cuts your cash in by $25,000, that is a good trade only if you can put that $25,000 to work on another deal or need it as a cushion. If the cash would just sit in your account, take the cheaper loan.

How do I compare a private lender at 8% plus a profit split? Convert both to dollars. A $200,000 private loan at 8% for six months costs $8,000, plus 25% of a $50,000 profit adds $12,500, for $20,500 total. A hard money loan at 2 points and 11% costs $4,000 plus $11,000, or $15,000. Profit splits get more expensive as your deal gets better, so the split is cheapest on thin deals.

Does the lender's ARV matter if mine is higher? Yes. Lenders size the loan off their ARV, so a lower number shrinks your loan and raises your cash to close. It is also a warning that your comps may be optimistic. Before you write any offer, price every quote in total dollars at your realistic hold length and at two months longer, then pick the loan that still works when the flip runs late.