Purchase money mortgage – what is it?

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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.

Before you commit to a purchase-money mortgage, explore all possibilities. As mentioned earlier,  both the buyer and the seller can discuss and agree on the loan terms, thus offering more expansive legroom for the buyer. This kind of flexibility allows both parties to negotiate mutually beneficial terms. Down payments are negotiable, as well as closing costs and other fees. If the seller’s terms are still a bit far from reach, you can negotiate until you come to a place where both of you are comfortable. Let us know how we can help you understand the terms better.