When I started a real estate investing company years ago, I was lucky enough to have access to financial backing for my first projects. Many new investors aren’t so lucky and end up having to jump through a lot of hoops just to get the cash. But when you find a great investment property, especially here in the Windy City, time is of the essence. Competition is fierce, so whether or not you get funding fast can make or break a deal. That’s why investors frequently rely on hard money real estate loans in Chicago. As a new investor, it’s a good idea for you to understand what they are and how to qualify.
Hard Money Loans for Buying Real Estate in Chicago
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. 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 removes much of the red tape that may stall an approval from traditional lending institutions.
Hard money lenders can also finance projects that banks and credit unions won’t, and at a much faster rate–sometimes in a matter of days. Additionally, they’re willing to give you closer to the amount of money you need, whereas banks may require that you bring 30-40% of your own rehab money to the table as a down payment. Hard money is often seen as the best option for home rehab loans for investors who need to combine the purchase price of a distressed property and the cost to renovate it into one loan as quickly as possible.
That said, 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 a few Illinois-based lenders to get an idea of what’s offered locally and what you’ll need to qualify.
Armitage Street, LLC
Located in the city of Chicago, Armitage provides 12-month term loans for buying, renovating, and refinancing non-occupied single and multi-family properties. Loan amounts range from $100,000 to one million dollars, limited to 70% of the purchase price and 80% of renovation costs. They can close in 10 days or less and promise rapid response times regarding approval. There are no prepayment penalties or restrictions, as well as no appraisal fees.
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 for buying and renovating residential properties from their Elmhurst, Illinois office. They’ll fund anywhere from 75 to 100% of your project in amounts ranging from $50,000 to two million dollars. Interest rates vary between 6.5 and 13%, with terms between six and 18 months–though you’ll be shooting yourself in the foot with holding costs if you take that long to finish a rehab. Additionally, SIC Funds gives you the option to make interest-only payments or to roll your first six months of payments into the loan itself, and you’ll know in 24 hours if you have a deal.
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.
South Holland-based FBC Funding also has multiple loan options available for fix-and-flip rehabs of single-family homes and multi-family buildings. Interest rates range between 9.5 and 18% and loan amounts between 55 and 100%, both of which depend on the property and the borrower. Loan sizes go up to one million dollars and terms are six to 12 months, with no penalty for early payoff. Five-day closes are possible for experienced investors, as are better rates, but the firm is willing to work with new investors.
As a new investor, though, you may find it difficult to qualify with FBC because your credit-worthiness counts. You’ll have to have 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–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.
The Real Deal for Investing in Chicago
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, I have the professional reputation to get the funds to buy and renovate them. And, when it comes time to sell, I know how to market my Chicago investment properties to help achieve the highest possible returns-—for both the lender and my business. Owning a HomeVestors® franchise is simply the best deal in town.
If you’re new to investing and trying to build a solid professional real estate investing reputation that attracts lender interest, contact HomeVestors about franchise opportunities today.
Each franchise office is independently owned and operated.