A purchase-money mortgage transaction happens when the home seller issues a mortgage to the borrower, especially when the borrower does not qualify for a mortgage through the usual means. When the buyer assumes the mortgage balance of the seller’s property, this can also be considered a purchase-money mortgage.
Difference between a traditional mortgage and a purchase-money mortgage.
In a traditional mortgage, where borrowers apply for their mortgage from financial institutions, and the latter holds the deed until the debt is satisfied, the qualifying requirements differ in a purchase-money mortgage. The seller is the one holding the deed.
Another difference between a purchase-money and a traditional mortgage is that both the seller and the buyer can agree on the monthly payment, loan terms, and even the interest rate, especially if the seller has a clean title. As this is the case, a possible disadvantage is if the buyer assumes the seller’s mortgage plus the purchase-money loan, there will be a higher monthly payment than the traditional mortgage.
Purchase-money mortgage buyer benefits.
Do you have a bad credit score and a high debt-to-income ratio (DTI)? As a buyer, you may not qualify for the usual bank financing or the other traditional loans; going down the route of a purchase-money mortgage may be for you.