What is Purchase-Money Mortgage

A Purchase money mortgage is issued to the borrower from the seller as a part of purchasing transaction that is usually done in all those circumstances where the buyer won't be able to qualify for a mortgage by traditional lending channels. It can be used in all those situations where the buyer assumes the seller mortgage and the difference between balancing the assumed mortgage plus the selling price of the property made up of seller financing. In simple words, if you won't be able to qualify for a traditional bank mortgage loan then you can investigate a loan provided by the Home seller known as a Purchase money loan.

You can obtain a purchase money loan from a bank, a savings and loan, a credit union, or a private source of funds, including from the seller who is selling the home. If the seller makes a loan to the buyer, it is called owner financing, but it is still purchasing money. A Hard money loan is not considered as the purchase money loan because the hard money loan is usually granted based on equity and not necessarily the borrower's creditworthiness.

A conventional loan is the most common type of purchase money loan that is initiated by the banks and mortgage broker. They often comply with Fannie Mae or Freddie Mac regulations so they can be packaged and sold after closing in the secondary mortgage market.

Down payment requirements for the conventional loan range from zero to 3%, 5%, 10%, 15%, and 20%, or more. The lender can also ask about the down payment of more than 20% to lower than the loan amount to fit within the expected ratios. It is one approach a buyer can buy a more costly home for more than the borrower would be allowed for with 20% down.