One of the first methods that homeowners typically pursue to avoid losing their homes to foreclosure is a new refinance. Unfortunately, many banks no longer provide loans to homeowners with very little equity, low income, and bad credit. Some, though, will not provide a loan no matter what, as long as the home is in foreclosure. For homeowners who do own a significant amount of the home and have paid down their original mortgage, hard money lenders may be able to provide a source of funding to help them save their homes. There are various hard money loan programs offered by numerous lenders and investment groups, and, although there are additional qualifications and costs that must be met, this type of loan can be closed in a very short amount of time and can be used when homeowners are running short on time.

The most usual provider of hard money loans is an institutional lender or group of private investors who have come together and created a company that pools money and invests in real estate by providing mortgages. The value of the real estate and the interest charged on the loans make up the largest portion of the profits these companies make. They are mainly used by borrowers who do not have a lot of time to close on the mortgage, when the borrower does not wish to keep the property for longer than a few months, if the borrower can not give out their credit history or other financial information, or for larger loan amounts that traditional lenders would not be able to provide funds for. These loans can be used for creative financing purposes, as well as giving foreclosure victims one more solution to save a home.

There are two main considerations in qualifying for a loan through a hard money lender: equity and loan amount, and income. Many of these lenders will not loan more than 65-70% of a home's value, and foreclosure loans may have even stricter lending guidelines, depending on the company. Unless homeowners can work out a short payoff to refinance, this will disqualify the vast majority of foreclosed homes from getting a loan. The related requirement of the loan amount means that homeowners must borrow a certain amount of money to get the loan in the first place. Most hard money lenders have requirements of $75,000-$100,000 as a minimum, due to the nonexistent profits of managing properties with lower values.

Thus, homeowners must meet two related qualifications of having a property that with a high enough value, and having significant equity in that property. It can often be difficult to calculate if lower-valued homes will even qualify for these kinds of loans. For example, if the necessary requirements are 65% loan-to-value (LTV) and a $100,000 minimum loan, the homeowners will need a property worth at least $154,0000. If the requirements are 70% and $75,000, the house will need to be valued at $108,000. Hard money lenders' qualifications can vary dramatically from one company to the next, so foreclosure victims can shop around for the best deals, especially if they are turned down the first time.

The second major requirement to meet for this type of loan is that the homeowners must have enough income to make the mortgage payment. A credit check is usually necessary for the lender to take a look at the foreclosure victims' other monthly obligations to determine how much of their incomes will need to be paid on the mortgage. If the homeowners do not have enough income to pay the mortgage, all their other debts, and keep the lights on and provide for their families, the hard money lender can not make the loan and expect it to be paid on time. This is why most of these lenders will require a credit check: not to determine the homeowners' score, which is typically low or else they would qualify for a traditional loan to stop foreclosure, but to help determine if they can afford the payment at all.

But, for the lucky few homeowners who are able to qualify for a foreclosure bailout from a hard money lender, the fun does not end. The loans typically have higher costs because of their unique nature and specialized uses. It is not uncommon for homeowners to be charged 4-5 points on the loan, which is simply the lender's up front fee for making the loan at all. Interest rates can also be sky high, in the range of 12% to over 20%. This often results in a higher mortgage payment for the homeowners than they originally had, making is absolutely essential for them to have recovered financially from their hardship and have established some sort of emergency fund to protect against future drops in income.

Despite the strict requirements of this type of foreclosure loan, homeowners who meet the qualifications often find they are able to stop foreclosure very quickly and get a new loan, making this a viable solution. Although they are more expensive than traditional mortgages, they are designed to offer homeowners a short-term solution to foreclosure and allow them the chance to save their homes and begin to establish an on time mortgage payment history. The hard money lender, in turn, makes a high rate of interest on a reasonably safe investment, and provides foreclosure victims with an additional option to avoid losing their homes, making a significant positive contribution to local communities and individual families.

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