If you've found the home of your dreams, owner-financing can help make your fantasy a reality. Some people use owner-financing to purchase homes from family or friends. Many home sellers, however, opt to put their homes on the market and finance them themselves, and this can be a great opportunity if the bank won't finance your loan. Owner-financed mortgages, however, might not end up on your credit report, which means you won't get the credit boost that buying a home can often bring.
TL;DR (Too Long; Didn't Read)
Owner-financed mortgages typically aren't reported to any of the credit bureaus, so the info won't end up in your credit history.
Credit Reporting Requirements
Banks report home loans as a matter of course, with very few exceptions. The credit bureaus generally require that lenders meet certain criteria before they can report a loan. Your lender will have to be a business, meet certain compliance measures or provide proof of the mortgage. If your lender isn't a business, the mortgage might not be able to be reported. Some owner-financers simply neglect to report loans to the credit bureau because they're not used to doing business in the mortgage industry.
Selling the Mortgage
If your lender doesn't meet the credit bureaus' criteria for mortgage reporting, the only way to get your mortgage reported is to have it moved to a different lender. Refinancing is certainly an option, but an easier way to report your mortgage is to request that your lender sell your mortgage. When your mortgage is sold to a business, it will typically be reported to the credit reporting agencies within a month or two.
Reporting the Mortgage
If your lender meets the credit bureaus' minimum standards for reporting, you should be able to have your mortgage reported. Ask your lender if she can fill out the paperwork to report the mortgage. Alternatively, you can report the mortgage as rent on a rent-tracking website. These websites report to the credit bureaus, and while doing so won't build your credit as much as a mortgage, it can help boost your credit a bit.
How Defaulted Mortgages Affect Credit
Even if your mortgage can't be reported to the credit bureaus, a default could still harm your credit. If you don't pay your mortgage, your lender might sue you, and judgments go on your credit report. Your lender might also opt to hire a third-party debt collection agency. These companies typically report outstanding debts within a month or two, which means that not paying your mortgage can severely affect your credit, even if your mortgage payments don't register on your credit report.
Van Thompson is an attorney and writer. A former martial arts instructor, he holds bachelor's degrees in music and computer science from Westchester University, and a juris doctor from Georgia State University. He is the recipient of numerous writing awards, including a 2009 CALI Legal Writing Award.