You have the same options for a home-improvement loan with an owner-financed house that you would have with a conventional mortgage. You can get a personal loan, obtain a home equity line of credit or get a home equity loan. You'll just have to prove your right of ownership and demonstrate your equity or interest in the house. In some cases, you may have to get the consent of the person who is financing you.
TL;DR (Too Long; Didn't Read)
While you may need to obtain permission from the seller who has been financing your home, you can get a home improvement loan if you meet the lenders requirements.
Check Your Contract
If you bought the house on a contract for deed, the title may still be in the seller's name and a bank may require his approval before you can get a loan. You'll need to check your contract specifically to see what rights you have to use and improve the property. A contract that specifies you are responsible for taxes, insurance and maintenance usually will satisfy requirements for a loan.
Use Your Equity
Using home equity, or home's value minus what you still owe, is the best way to finance home improvements. Since you won't have a mortgage, you'll need some statement from the seller or some record to show how much equity you have built up. Lenders usually will lend up to 80 percent of a homeowner's equity. A personal loan not secured by your house will be more expensive and harder to get.
Line of Credit
A line of credit is another home-improvement option. This type of loan has a fixed limit but allows you to take out only as much as you need, and you'll be charged interest only on what you borrow. If you get a 10-year $15,000 line of credit, for instance, and your home-improvement project is only $7,500, you'll only be charged interest on that amount. You also usually will have flexible repayment options so you can pay it off in stages rather than a set amount each month.
FHA Title 1
You might try for an FHA Title 1 improvement loan. These can go up to $25,000, and to qualify you must prove ownership or have a long-term lease; a contract for deed usually would suffice. You don't have to prove any equity, but you must have proof of good credit. These loans are made by private lenders but are insured by the Federal Housing Administration.
Have Good Credit
An obvious requirement for any home-improvement loan is a good credit rating. Check your FICO score before starting an improvement. If your score is 720 or above, you probably can qualify easily for a home-improvement loan. Your combined payments for the owner financing and the home-improvement loan should be less than 30 percent of your monthly income.
Bob Haring has been a news writer and editor for more than 50 years, mostly with the Associated Press and then as executive editor of the Tulsa, Okla. "World." Since retiring he has written freelance stories and a weekly computer security column. Haring holds a Bachelor of Journalism from the University of Missouri.