Provided you've quoted the lyrics correctly (and it does sound familiar) there are at least two ways to make it make sense, if you play around with the punctuation:
Baby you're all that I want. When you're lyin' here in my arms I'm finding it hard to believe (that you really ARE lyin' here in my arms). Yes we are indeed in heaven. And love is all that I need and I found it there in your heart. It isn't too hard to see that we're in heaven.
OR:
Baby you're all that I want. When you're lyin' here in my arms I'm finding it hard to believe (that you really ARE lyin' here in my arms). Yes we are indeed in heaven. And love is all that I need and I found it there in your heart. It (your love) isn't too hard to see (I mean hey it's right there in your heart). Yes we are indeed in heaven.
It's been bugging me for years, lol, so I've given this matter some thought:)