A purchase-money mortgage is a note secured by a mortgage or deed of trust given by a buyer, as borrower, to a seller, as lender, as part of the purchase price of the real estate. It is a method of financing a home in which buyer borrows from the seller instead of, or in addition to, a bank. It is sometimes used when a buyer cannot qualify for a bank loan for the full amount. It may also be referred to as seller financing or owner financing.
There are generally two types of purchase money mortgages: (1) a mortgage given by the buyer of property to the seller to secure the balance of the purchase price ("seller take-back" loans) and secured by the property being sold (i.e., not by some other property); or, (2) A "third party" purchase money mortgage, given by lender to secure a loan which was used to pay all or part of the purchase price on the dwelling occupied totally, or in part, by purchaser. A purchase money mortgage involves the owner's/borrowers's risk of losing the property and the foreclosure's impact on the owner's credit.