Can an Owner-Financed Home Be Refinanced?

by Ray Cole ; Updated July 27, 2017
Your bank might offer to refinance your owner-financed loan.

An owner-financed home may have positioned you to buy your first property. You might be able to pay off the owner-financed mortgage if you obtain a loan to refinance your home. You will need to present sufficient income and favorable credit. During the loan process, your lender will order an appraisal. The appraised value must exceed the loan amount and meet certain loan-to-value approval conditions.

Mortgage Note

A copy of the borrower’s mortgage note will be requested for review. A mortgage underwriter will examine the validity of the document used to finance the purchase of a home. If you purchased a home using owner financing, check your records for documents such as the mortgage note, land installment agreement, promissory note or other seller-provided instrument that displays the financing terms. Your mortgage lender will need to verify the signed agreement between you and the seller, which reflects the original cost of the home, the amount financed and the purchase date.

Title

A title report will determine the legal owners of the property. Some sellers might record the owner-financed transaction within local court records. If the title reflects your name on the land records for greater than 12 months, you may be positioned to move forward. However, if the seller’s name is still listed as the legal owner of the home, your lender will check for liens against the property that belong to the seller. If the title report is clear, a new lien will be added for the amount that is refinanced.

Payment History

The payment history for a noninstitutional loan could determine whether a bank or mortgage lender will consider your request for an owner-financed refinance. The focus will consist of the duration and timeliness of your home loan payments. Unlike institutional home loans, most owner-financed mortgages are not reported to the credit bureaus. Payments that are made as agreed for greater than 12 months might increase your chance of obtaining a refinance. Mortgage lenders will request bank statements or cancelled checks that cover a 12-month period to substantiate your payment history.

Credit

Your credit history largely dictates your probability of obtaining a refinance. Generally, your credit report should show on-time payments to creditors for greater than 12 months. Typically, you will need an above-average credit score to secure a refinance loan. Review your credit before contacting a lender about the possibilities to refinance. Pay off any arrears, such as collections or past-due revolving debts, 60 days in advance of speaking with a mortgage lender. Adjustments made to your credit report may have time to update during the 60-day period.

About the Author

Ray Cole has written professionally since 1999 and has designed dozens of Web sites. Cole writes for eHow and "SF Gate." As a small business owner for over 15 years, he provides mortgage services, credit-related help and financial planning for his clients. Cole is currently writing a book about personal finance. He has also studied and taught martial arts for over 31 years.

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