What is a purchase-money mortgage?

A purchase-money mortgage is a specific type of financing arrangement where the buyer borrows money to purchase a property, and part of that borrowing is directly from the seller. This typically occurs when the buyer does not have enough cash for the down payment or when traditional financing options are not available or advantageous. In this scenario, the seller effectively acts as a lender, providing a loan to the buyer as part of the overall transaction to facilitate the sale of the property.

This structure can be beneficial for both parties: the seller is able to sell the property despite the buyer's financial constraints, and the buyer is able to acquire a home without having to secure a full mortgage from a traditional lender. The terms of the loan—such as interest rates and repayment periods—are often negotiated directly between the buyer and the seller.

Other choices do not accurately describe a purchase-money mortgage. For instance, a type of mortgage with fixed interest rates is a general characteristic of many mortgages, not unique to purchase-money mortgages. A government loan program for first-time buyers refers to specific loans, such as FHA or VA loans, that are designed for certain market segments but do not encapsulate the essence of a purchase-money mortgage. Lastly, the stipulation that a mortgage must be provided through