What is a purchase money mortgage?

A purchase money mortgage refers specifically to a loan that a seller provides to the buyer to help facilitate the purchase of property. This arrangement typically occurs when the buyer may have difficulty securing traditional financing from a bank or mortgage lender for the entire amount of the purchase price. In this case, the seller essentially acts as a lender for a portion of the sales price, effectively allowing the buyer to finance their purchase through this secondary financing option.

This type of mortgage can benefit both parties: the seller may be able to sell the property more easily, and the buyer can obtain the funds needed to complete the purchase without relying solely on institutional lenders. The terms of these loans can vary but often include interest rates and repayment terms that are negotiated between the buyer and the seller.

Understanding purchase money mortgages is crucial for real estate professionals, as they represent an alternative financing option that can make transactions possible in scenarios where buyers face hurdles in their financing journey.