Found the deal of a lifetime, but can't finance it?

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There are a lot of real estate bargains on the market in some locations. Foreclosure sales, real estate owned by lenders, and short sales clutter up the property listings in distressed parts of the country. While ferreting out a killer bargain isn't easy, it can be done. The harder part is nailing down the financing. Even people with good credit won't have an easy time financing property bought on the courthouse steps. Those with a less than perfect history face even greater challenges.

So, is there a way to buy auctioned properties without paying cash?

Sure there is. But it's not 96.5% FHA financing. It's called hard money and the name fits. A lot of hard money is put up by individual investors, either on their own or through finance companies. Currently, you can expect to pay six or seven points up front on loan fees and an interest rate of about 12%. Expect to put up a substantial down payment and to prove that you have sufficient income to make the payments on your loan. You should also have some plan for improving your credit to the point that you can refinance out of the hard money loan and into a conventional or FHA mortgage.

So, what kind of borrower is a hard money loan suitable for?

If you are struggling financially, hard money is not for you. Keep renting for now. But if you walked away from your last mortgage (and no respectable lender will touch you), or you filed bankruptcy, hard money may be a viable option if you have the income to sustain a high mortgage payment, plenty of cash for a down payment and big closing costs, and have found a screaming bargain of a home to buy. Fees of 7% upfront are easier to swallow when you are getting a 30% discount on the price of your home. Hard money lenders also cater to those who have rediscovered the joy of flipping. Investors are coming out and snapping up investments in distressed housing markets (condo in Vegas for $20k, anyone?).

Where do you find hard money lenders?

Until recently, private hard money was scattered between individuals and small, disconnected companies. Today, there is the American Association of Private Lenders, which has established a code of ethics and provides education for its members. Members include private lenders, brokers, attorneys, accountants, mortgage fund managers, loan servicers, debt buyers, and consultants. For more information on American Association of Private Lenders and their Code of Ethics, go to the AAPL's Web site.

For most people, hard money is well, too hard.

Hard money solutions are not appropriate for most folks. If you have mortgage credit problems and don't know what kind of financing you do or do not qualify for, try the form on this site. The mortgage lenders on this site are accustomed to helping people with credit problems and will be happy to assist you.