How Does a Purchase-Money Mortgage Work?

A purchase-money mortgage is a type of mortgage that is used when a home buyer cannot secure traditional financing. Here are the basics of the purchase-money mortgage and how they work.

Purchase-Money Mortgage

This type of mortgage is also sometimes referred to as seller financing or owner financing. With this type of program, the buyer gives the seller a down payment and then starts making payments to the seller to purchase the rest of the equity in the property. 

Advantages of Purchase-Money Mortgage

From the seller's point of view, this type of arrangement can be beneficial because they increase the amount of people that can buy their house. This means that it is easier to sell properties that have otherwise been tough to sell. The seller can also negotiate a higher purchase price because they are offering a purchase-money mortgage. They also get the benefit of earning interest on the sale.

From the buyer's perspective, they get to qualify for a mortgage when they cannot do so at a regular lender. This increases their options and allows them to get involved with home ownership even though they might have bad credit from some of the poor choices that they have made in the past.

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