Home values ​​have fallen dramatically and some borrowers now owe more than their home is worth! They’re moving away… and foreclosures are at an all-time high.

Many people got low-interest adjustable-rate mortgages (ARMs) a few years ago, and now those ARMs are resetting to much higher interest rates, raising homeowners’ monthly payments, sometimes to levels they can no longer afford.

These are great opportunities to buy houses on the cheap, but you will need fast money to buy these properties. This is where “hard money” loans come in. No income or credit verification required. The loan is made based solely on the property’s loan-to-value (LTV) ratio.

Hard money lenders will typically lend up to 75% LTV. That is 75% of the appraised value of a property. So, if you are buying wholesale bargains to “flip”, these lenders will allow you to buy the property and get some extra money to make necessary improvements to the property. In Michigan, hard money loans are made only up to 50% LTV due to the especially difficult economic climate in that state.

Hard money loans can be obtained quickly, usually within a week or two. This is important because many “bargain” properties will be obtained at auction. Auctions generally require the buyer to make a non-refundable deposit of a percentage of the auction price when he wins the bid. You will then have 30 to 45 days to pay off the property by taking out a home loan. Conventional mortgages can sometimes go longer than 30 or 45 days before closing, and this would cause the buyer to lose their deposit on the auctioned property! It’s not a good thing, obviously.

Unless you’re a wealthy investor, hard money loans are the way to go for most buyers. Find a good mortgage broker to work with. Mortgage brokers act as intermediaries between the borrower/buyer and a host of different lenders with whom they have established relationships. They charge fees as “points” at loan closing. One point = 1% of the loan amount. Often these closing costs can be included in the new loan balance. Your only out-of-pocket expense will be to obtain a current property appraisal.

Most hard money loans are made by private investors, not banks, so using a good mortgage broker is really the only way to go. They will be your partner in your real estate investment for years to come.