Can an Owner Financed Mortgage Be Reported on Your Credit Report?

Credit reports collect information related to an individual's credit and all credit activities within a certain time frame (most activities only last for several years on the report). Credit scores in turn are controlled by the FICO formula, which divides various credit information and activities based on their importance. Usually, mortgages and other large loans play a very important part in reports and scores, but this is not always the case when it comes to an owner-financed home loan.

An owner-financed mortgage occurs when a buyer approaches an owner about buying a property that is for sale, but wants to use private financing. The owner then lends the buyer enough money to purchase the home, and as in a traditional mortgage, the buyer pays the owner monthly installments on the debt plus the interest rate as decided by the owner. This offers several advantages to the buyer -- notably, the buyer does not need to worry about qualifying based solely on credit, although sellers may order credit reports to examine credit histories for unknown buyers.

Credit reports can only provide information and scores based on the information that credit agencies have. It is common practice for banks and other large, institutionalized lenders to immediately provide such data for the agencies. However, owners do not have such practices and as a result most buyers find that owner-financing does not affect their credit and that their credit report remains relatively unchanged.

Reporting information depends almost entirely on the creditor. Creditors are under no obligation or law to report a mortgage to the credit bureaus, which is why sellers do not have to send in information if they decide to finance a buyer. However, they do have the option to send in a report on the loan. If owners decide to report the loan, then regulations do demand that the report be accurate, up to date and free of misrepresentation. However, this is still an owner-based decision.

Buyers may want to consider asking owners to report the mortgage to the credit agencies. This way, buyers that pay their mortgage faithfully can benefit from the positive results on their credit history. However, this creates the equal danger that if buyers stop making payments or miss a payment, their credit history will suffer accordingly.

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