Purchase Money Mortgage
A purchase money mortgage is a loan provided by the seller to the buyer to finance the purchase of the property, rather than the buyer obtaining a traditional bank mortgage. The seller acts as the lender, allowing the buyer to make payments directly to them over an agreed-upon period.
Example
“Unable to qualify for a bank loan, Sarah obtained a purchase money mortgage from the seller, who financed $100,000 of the $300,000 sale price.”
Memory Tip
The seller becomes the bank - they're lending you the 'PURCHASE MONEY' instead of a traditional MORTGAGE company.
Why It Matters
This financing option can help buyers who can't qualify for traditional mortgages and sellers who want to sell quickly or earn interest income. It can also expedite closings since there's no bank approval process required.
Common Misconception
People often confuse this with seller financing in general, but a purchase money mortgage specifically creates a mortgage lien on the property in favor of the seller.
In Practice
If you can't get approved for a bank loan, the seller might agree to a purchase money mortgage where you pay them $2,000 monthly for 15 years instead of getting traditional financing. The seller holds a mortgage on the property until you pay it off completely.
Etymology
Combines 'purchase' (to buy), 'money' (medium of exchange), and 'mortgage' from Old French 'mort gage' (death pledge), literally meaning a 'death pledge for buying money.'
Common Misspellings
Compare the best financial products for you
More in financing
Other financing terms you should know
Need financial definitions?
Clear definitions for 2,500+ finance, insurance, and investing terms.