Judy came up to me one evening after I gave a talk at a local real estate investing club. She said that while helping her daughter shop for a house in Avondale, she’d noticed quite a few “ugly” homes there and in nearby Roscoe Village. This got Judy thinking. She was sure there must be an opportunity to invest in some of Chicago’s up and coming neighborhoods by buying and renovating distressed homes. But, as a novice investor, she didn’t know how to fund such an undertaking. Some of the other folks at the meeting told her that many investors use hard money and that there were plenty of hard money lenders in Chicago to choose from. I told her they were right.

In fact, the advantages of using hard money loans for buying and renovating a property are why a lot of established real estate investors like them. But, it can be tough to know how to put your best foot forward when approaching lenders if you’ve never invested in real estate before. You also have to know which Chicago lenders are most eager to offer you hard money loans. So, I stuck around a little longer to give her, and a few of the other novices, a quick rundown on hard money. Then I suggested an easier approach for finding the funds you need. Here’s what I said.

Why You Should Apply for a Hard Money Loan

The use of hard money, as opposed to conventional funds borrowed from a bank or credit union, allows you to buy and rehab projects quickly without having to deal with a lot of red tape. Hard money is a type of loan that is typically based less on a borrower’s credit credentials and more on the value of the real estate being held as collateral. These lenders don’t require mortgage insurance, may not always call for a property appraisal, and aren’t forced to comply with the Dodd-Frank Act.

This means that hard money lenders, often investors themselves, can provide an approval within days of receiving an application and will even consider financing homes for sale that traditional lenders won’t go near. As long as the subject property looks like a good investment, and the lender can make money on its sale should you default on the loan, getting funds approved for your project isn’t typically hard.

That said, as a new real estate investor, you might encounter more scrutiny from hard money lenders than experienced investors do. But, there are a few ways you can prepare yourself when approaching them that might increase the odds of getting your loan approved.

A Step By Step Guide to Approaching Chicago’s Hard Money Lenders

When you meet with a savvy hard money lender in Chicago, you need to put your best foot forward. This may mean demonstrating your credibility as an investor, showcasing other financial credentials, or teaming up with more experienced investors to prove that you mean business. But how should you present all of this information to a local lender? By following each of the steps below, you’ll dramatically improve your chances of getting approved for a hard money loan.

Step 1: Create a Real Estate Investor Credibility Kit 

Lenders don’t always require a real estate investor credibility kit, but if you’ve got one, or can make the time to develop one, it can serve to break the ice with a lender you’ve never worked with before. These packages are designed to showcase the details of your investing background, including how many properties you’ve bought and sold, in an effort to secure a loan based, at least in part, on your experience.

Credibility kits often include a business statement, your credit profile, escrow closing documents, and sometimes before-and-after pictures. The south of Chicago lender, FBC Funding, for instance, likes to see that you’ve closed on at least three to four deals in the last two years if you’ve never borrowed with them before. Of course, generally speaking, the value of the property ultimately matters more to most hard money lenders, even if you can prove investing experience.

Step 2: Show Off Your Excellent Credentials 

Though tax records, employment history, credit rating, and FICO score are not always considered by lenders when reviewing an application, it’s not a bad idea to have these particular ducks in a row when you’re seeking hard money for the first time. Some lenders, like Secure Investor Capital, Inc. in Elmhurst, even require them. In fact, an excellent credit rating and FICO score could put you at an advantage where limited investing experience or the lack of an investor credibility kit might otherwise hurt you. If you’ve also got substantial liquid assets to use as collateral, and have found a great investment property, your chances of getting a loan are that much better because you’ll seem like less of a risk to the lender.

Step 3: Partner with Another Investor  

Sometimes, however, a hard money lender will still ask for more experience than you might have before even considering your loan application. Yes, it’s helpful to have excellent credentials and a fixer-upper home that shows great potential for producing good returns. But, it can be just as important to some lenders that you’re able to prove that you know what you’re doing.

Unfortunately, having only one or two rehabbed houses under your belt doesn’t always qualify as proof. Chicago’s Armitage Street, for example, may request a personal guarantee if you don’t have enough investing experience. You certainly won’t get the most competitive rates. So, if you can partner with an established investor on your first several properties, you’ll be able to get the experience you need, build up your credibility, and fund your future investments with money from lenders who are eager to work with you.

Whether or not you’re having trouble getting Chicago hard money lenders to loan to you as a new investor, leaning on your professional network for referrals can make the process easier. Word-of-mouth is still one of the best ways to find the most reliable resources, especially when starting something new. And when you’ve got a network whose word you can trust, you’ll find you can accomplish just about anything—including investing in your first piece of Chicago real estate.

How to Find the Right Hard Money Lender in Chicago

Now that you know what to do when you meet with a hard money lender in Chicago, you need to think carefully about where to send your application. The lender you choose ultimately depends on your credentials and the lender’s requirements. Additionally, every lender is different in terms of what they provide, how fast, and to whom. It’s a good idea to keep in mind, however, that the rates and terms advertised by some companies are not available to all real estate investors–particularly if you’ve never invested before. Let’s take a look at three Illinois-based lenders to get an idea of what’s offered locally and what you’ll need to qualify.

Armitage Street, LLC

As a hard money lender in Chicago, Armitage provides:

The fine print…

The interest rate and origination fee, however, are based on the applicant’s investing experience and the assets to be used as collateral. So, unfortunately, as a new investor, you’re not likely to get the most competitive rates. As for whether they consider credit history, credit scores, tax returns, pay stubs, or anything else related to your personal finances to give an approval, mum’s the word until you submit your project for review. Regardless, you will have to provide a personal guarantee. This means that, in the event of a default, Armitage can go after both your business and personal assets. Ouch!

Secure Investor Capital, Inc. (SIC Funds)

SIC offers several loan programs from their Elmhurst, Illinois office:

The fine print…

Oddly, you will have to pay conventional closing costs at one to three percent of the loan, including title, survey, and appraisal fees, but that’s far from terrible. What’s potentially more troublesome is SIC Funds looks at your credit history and experience as an investor, not just the property, when determining what program you qualify for–if you qualify at all. A minimum FICO of 600 is required, as well as tax returns, W-2s, and a low income-to-debt ratio–which may hold you back from doing multiple deals at once with these guys. You may also be asked for information about any retirement accounts, stock holdings, and cash reserves. For a hard money lender, SIC Funds makes it tough to get a loan–especially if you’re a new investor.

FBC Funding

South Holland-based FBC Funding also has multiple loan options available:

The fine print…

As a new investor, though, you may find it difficult to qualify with FBC because your creditworthiness counts. You’ll need a minimum credit score of 550 to 660, depending on the loan, and no blemishes on your public record for the last 24 months. You may also have to pay an origination fee of $1,500 and up to nine points, which is unusually high for a hard money loan, in addition to legal, title, escrow, and closing costs–unless you’ve closed on three to four projects in the last two years. So, though this hard money lender will work with you if you’re new, it’ll cost you.

Generally what’s great about hard money lenders in Chicago–even those not highlighted here–is that a lack of investing experience won’t necessarily stop you from securing the money you need. If you do that, ultimately, what tends to matter more than your experience is the property itself and whether it has the potential to produce returns. As long as lenders can make money, they’ll often make you a deal.

A Reliable Approach to Finding the Resources You Need

Luckily for me, as an independently owned and operated HomeVestors® franchisee, investing in Chicago real estate has never been hard. Not only is finding fixer-upper homes for sale easy, but I also have the professional reputation to get the funds to buy and renovate them. Even better, with HomeVestors®’ proprietary software, UGVilleSM, I’m able to get offers from Chicago hard money lenders within just minutes. All you have to do is log in to the online portal, enter your project details, and wait for the best Chicago hard money lenders to reach out to you. With a list of clearly-outlined terms and conditions, you can easily compare offers and make a deal with the most competitive lenders in the city.

When Judy learned that getting the financing she needed for her first qualifying investment property and its repairs didn’t have to be hard, she took the opportunity to become a HomeVestors® franchisee, too. If you’re wondering whether broadening your network could be the advantage you need for growing your real estate investing business, contact the HomeVestors® team today.