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If I use a mortgage to purchase a house, I can use the equity (which I'm assuming is fair market value minus what I owe) as collateral for a bank loan (second mortage, home equity line of credit). Can I do the same if I purchase the house through an installment sale where the seller retains the title until the house is paid off?

The context I have in mind is where I might need funds to make improvements to the house.

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  • "...which I'm assuming is fair market value minus what I owe". You need to factor risk in. During a previous life I wrote an expert system for a mortgage lender. They had the concept of a quick-sale value, which was 90% of market value.
    – Simon Crase
    Commented Aug 20 at 4:22
  • "...the seller retains the title until the house is paid off". Let us say that you have paid $250,000 for a million dollar house: what is your security for the $250,000? What stops the vendor selling for $900,000 to someone else? Or do you have a caveat on the title?
    – Simon Crase
    Commented Aug 20 at 4:26
  • Do they do installment sales in the US? Reminiscent of Upton Sinclair's The Jungle, innit?
    – Spehro 'speff' Pefhany
    Commented Aug 20 at 14:05
  • "Improvements" could alter the commercial value of the property. It might be something that is not possible until transfer of ownership is complete. You'd want to check the contract very carefully regarding making significant changes to the property for any potential problems.
    – StephenG - Help Ukraine
    Commented Aug 20 at 19:53

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If the seller retains the title then you don't own the property and cannot collateralize it.

In the end it's up to the bank what would an acceptable collateral be.

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    If you can convince the seller to progressively sign over a percentage ownership in the property, that might be accepted as collateral. But probably heavily discounted since trying to do anything with a partial share over the objections of the other owners can be a nightmare, as anyone who has watched families battle over what to do with Grandma's house can attest.
    – keshlam
    Commented Aug 20 at 18:48

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