The top 10 questions to ask a private money lender include: interest rate, fees, loan-to-value ratio, loan term, closing speed, payment structure, prepayment penalties, rehab draws, extension options, and references.

Before borrowing from a private money lender, it’s crucial to ask the right questions. This ensures you understand the terms, protect your investment, and avoid surprises. Private money loans can be a flexible solution for real estate investors in Chicago, but only if you know what to look for.

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Why Work With a Private Money Lender?

Private money lenders offer speed, flexibility, and access to funding that banks often can’t provide. They’re especially valuable for:

• Fix-and-flip projects
• BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategies
• Distressed property purchases
• Time-sensitive real estate opportunities

But unlike banks, private lending terms vary widely—making due diligence essential.

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10 Essential Questions to Ask a Private Money Lender

1. What Is Your Interest Rate and How Is It Calculated?

Some lenders quote monthly interest, others annualized. Ask whether the loan is interest-only or amortized and confirm if rates are fixed or variable.

2. What Fees Should You Expect?

Typical costs may include:

• Origination points
• Underwriting fees
• Appraisal costs
• Closing costs

Knowing the full breakdown prevents unexpected charges.

3. What Loan-to-Value (LTV) Do You Offer?

Most private lenders fund 65%–80% of a property’s after-repair value (ARV). Clarify whether they base the loan on purchase price or ARV.

4. What Is the Loan Term Length?

Short-term private money loans often range from 6–18 months. Ask about renewal or extension options if your project takes longer than expected.

5. How Quickly Can You Close?

Speed is a key advantage of private lending. The best lenders in Chicago can close in 7–14 days, sometimes faster for repeat borrowers.

6. Do You Require Monthly Payments or Lump Sum at Exit?

Some lenders require monthly interest payments; others roll it into the payoff at closing. Confirm which model works for your cash flow.

7. Are There Prepayment Penalties?

If you plan to flip and repay quickly, ensure the lender won’t penalize you for paying off the loan early.

8. Who Handles Draws for Rehab Funds?

For renovation projects, many lenders release funds in stages. Ask about:

• Draw schedules
• Required inspections
• Timeline for reimbursement

9. What Happens if You Need More Time?

Confirm extension terms and associated fees. A fair lender will provide flexibility, but it’s best to know the rules upfront.

10. Can You Provide References From Other Borrowers?

Reputable lenders should have testimonials, case studies, or references from past clients. This builds trust and helps you avoid predatory lending.

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Quick Q&A for Borrowers

Q: Do private money lenders check credit?
A: Some do, but most focus more on the property value and project potential than your credit score.

Q: Is private money lending legal in Illinois?
A: Yes. Private lending follows Illinois property law and must comply with usury limits. Always review contracts with an attorney.

Q: Can I use private money for rental properties?
A: Yes. Many investors use private loans to purchase and rehab rentals, then refinance with a conventional loan later.

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Benefits of Asking These Questions

• Protects your bottom line – no hidden surprises.
• Builds lender trust – shows you’re a serious investor.
• Prepares you for success – helps you align financing with your strategy.