Credit Scores and Owner Financing

Experian, one of the Credit Bureaus, has an interesting article in their “Credit Education” section.  They focus on the importance of your Credit Score, and mention credit repair approaches where errors occur.

Experian mentions correcting your history.  The writer says most problems are in errors in reporting or posting.  They fail to mention that you can CHANGE the character of your history and improve your credit score by changing your kind of activity.

Experian offer no help here in taking control of your credit score.

Further, a primary factor missing by design in the Credit Score system is your integrity and conscientiousness in handling cash.  This is a core flaw in the system.  You can have millions of dollars, but fail to qualify for a conventional home loan.

The Credit Score system is based on debt!  Your financial ability and responsibility are not even in focus.  What the Credit Bureaus report on is your ability to PAY DEBTS.  NOT your ability to PAY BILLS and OBLIGATIONS!  There is an important difference here.

Alternatives
So people living on a cash economy are shut out, punished, by this Credit Score system.  They may not not trust banks.  They may pay all their bills in cash.  They will have a low Credit Score or may not even be in the system.  When applying for bank credit all the banks know is the Credit system.  If you are not in the system, you don’t qualify.

In this case they need to look for alternative channels to home purchasing.  A very popular one, well-established in custom and law, is Owner Financing, also called Seller Financing.

In this method, you make a down payment in cash to the owner, then make payment to the owner, like you would a bank.  The owner can sell the house much quicker, since banks may take 3 months or more to approve a loan.

Building Credit
And building your credit to the level of qualifying can often be accomplished in a short term, usually 6-12 months.  The interest rate for Owner Financing is usually higher.

But you are taking this approach for the short term, while improving your credit.  Then when you qualify to refinance, you can get a lower rate than for an initial loan to buy a home.  So over the long run you will save considerably.

To qualify for an Owner finance deal, the buyer can demonstrate financial reliability in various ways.  The owner who is financing will, of course, need personal identification information and employment information, to provide a picture of the overall financial status.

Some companies provide reporting and monitoring services for Owner Financing aimed at establishing a credit record or improving an existing credit score, and let you know when you have reached the level needed to Refinance your home.

Lower Interest
A refinance loan is usually lower interest than a conventional loan, so this offers you an additional advantage. When you qualify, your new Refi loan will pay off the Owner Finance loan, which is usually at a higher interest rate, and you will be in a firm credit-worthy position with your new low-interest Refinance home loan!

So watch for house ads that state “Owner Financing Available” or “Owner will Finance.”  You see these more and more, as people want to sell their houses now instead of waiting.

Texas Home Strategies assists homeowners and sellers to explore options open to them and to assist with difficult decisions.  Free consultation.  How can we help you?
682-325-8439

This entry was posted on 17 January 2012 at 22:15 and is filed under Topics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.

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