What is a purchase-money mortgage?

A purchase-money mortgage is a specific type of financing arrangement typically used in real estate transactions, where the buyer borrows money directly from the seller, in conjunction with a loan from a lender, to finance the purchase of a home. This method is beneficial for buyers who may need additional funding beyond what a traditional lender offers, allowing for a more flexible financing structure to help facilitate the sale.

In this scenario, the seller often acts as a lender, which can benefit both parties: the buyer gains access to additional funds that may not be available through conventional channels, while the seller may receive a steady income from the interest on the loan. This arrangement is particularly useful when buyers have difficulty securing enough funds or there are issues with obtaining a mortgage from the bank.

Other choices refer to alternative definitions or financial arrangements that do not accurately describe a purchase-money mortgage. These indicate different types of loans or financial products that do not involve the seller directly financing part of the purchase. Understanding the nuances of a purchase-money mortgage helps clarify its role in real estate transactions and financing options for buyers.