Can you refinance after buying a home with owner financing?
You will want to buy a home with owner financing if you are struggling to qualify for a traditional mortgage due to credit challenges. In an owner financing arrangement, you pay installments to the seller rather than a bank. But what if you want to refinance with a bank a few years after buying the home with owner financing? Is it possible?
The answer is - it depends. Here at Shop Owner Finance, we help people, struggling with credit, buy any homes they want with owner financing. Their payments in the owner financing arrangement are reported to the credit bureaus and as a result their credit score improves in a few years (check out our article on how owner financing can help you rebuild credit).
Our clients then approach conventional lenders and apply for a mortgage. The lenders approve their home loan application after taking into account their improved credit score. Our clients are overjoyed when they find out that their owner financing terms allow them to refinance with a conventional lender any time they want.
Owner financing terms that you agreed to at the time of buying your home dictate whether or not you can refinance.
Two important documents – promissory note and deed of trust – specify all the terms of your owner financing arrangement. If the terms specify that you are allowed to refinance, then you definitely can.
Why to refinance and when?
There are many circumstances when you may want to refinance with a conventional mortgage after buying a home with owner financing in Houston. For example, our clients usually take out a 30-year fixed rate loan with no obligation to make a balloon payment in an owner financing arrangement.
The interest rate that borrowers pay to conventional lenders keeps moving up and falling from time to time. If it falls, it makes sense to refinance with a traditional lender and lock in a lower interest rate.
You may also want to refinance if you want to change the mortgage type. For example if you want to get an adjustable-rate loan, you can consider refinancing with a bank.
You may also want to refinance if your home has built equity and you want to liquidate it to cover major expenses, such as your child's college education.
Our clients don’t need to pay any pre-payment penalties when they pay off their owner financing loan and refinance with a bank.
In a nutshell, refinancing can benefit you if it helps you reduce your monthly payments and shortens the amortization period.
You should first buy a home with owner financing if you can’t get approved for a mortgage because:
- You have a low credit score.
- You have no credit score.
- You are a self-employed professional and can't prove your income.
- You are a victim of identity theft.
- You are a foreign national.
- You have bankruptcy, foreclosure or short sale showing up on your credit report.
Once your credit score improves, you can refinance with a bank any time you want if you want to lock in a lower interest rate and shorten the length of your loan.
Owner financing can help you get on the property ladder without any hassles. It’s always better to buy a home and pay monthly installments than waste money on rent.