What is a purchase money mortgage?

A purchase money mortgage refers to a loan that the seller extends to the buyer to facilitate the purchase of the property. This type of financing often occurs when the buyer may have difficulty securing a traditional mortgage from a bank or lender. In such cases, the seller agrees to finance all or part of the purchase price, allowing the buyer to pay the seller directly over time, often through a promissory note.

This arrangement can benefit both parties; the buyer gets access to financing that might otherwise be unavailable, while the seller can potentially obtain a larger purchase price or sell the property faster than in a traditional sale. The terms of such loans, including interest rates and repayment schedules, can be negotiated between the buyer and seller, making this a flexible financing option.

Understanding this concept is vital for real estate professionals because it broadens the range of financing options available for buyers and can lead to more successful transactions.