How Does Purchase Money Mortgage Works
A purchase-money mortgage is a type of loan.
A purchase-money mortgage is a loan that the seller of a home gives to the buyer of a home as part of the deal to buy the home. It’s called “owner financing,” and it’s when the seller acts like a bank and gives money to buy a home. This article explains how Purchase Money Mortgage works.
Watch the below video on how Purchase Money Mortgage works:
Purchase Money Mortgage: Meaning
When the buyer of a home can’t get a traditional loan from a bank, she may choose to get the money for the home from the seller herself.
With a traditional real estate deal, the buyer pays the seller money in order to get the property. However, when a buyer takes out a purchase-money mortgage, the seller gives the buyer money. The buyer then pays the seller in accordance with the agreed-upon payment terms, and then the seller is paid back.
The buyer can use this purchase-money loan with a bank loan and a cash down payment. To get what he wants, he can ask for a higher price for the house as long as he’s willing to get the money in installments. They may also choose to give a buyer a purchase-money mortgage as a way to make money or quickly sell a home.
As a general rule, interest rates for purchase-money mortgages tend to be higher than for traditional mortgages. People who borrow money from someone who doesn’t pay a lot of money down or has bad credit are at risk.
An example of a purchase-money mortgage:
Marta knows that she won’t be able to get a traditional bank loan, so when she finds a house she likes, she asks the seller for a purchase-money loan. Home: $200,000. She gives the seller $10,000 as a down payment and gets a loan for the rest of the money. If she had been able to get a loan from the bank, she would have paid less interest. She pays the seller back in monthly installments.
A Purchase-Money Mortgage has advantages for buyers.
Even if the seller wants to see the buyer’s credit report, the seller’s criteria for the buyer’s qualifications are usually more flexible than those of traditional lenders, even if the seller wants to see the buyer’s report. Payment options for buyers include interest-only, fixed rate amortization, less-than-interest, or a balloon payment. They can choose from these options. Payments may mix or match, and interest rates may change or stay the same, depending on the borrower’s needs and the seller’s.
Down payments can be changed. If a seller wants a bigger down payment than the buyer has, the seller may let the buyer make lump-sum payments toward the down payment. Closing costs are also less. Without an institutional lender, there are no loan or discount points or fees for things like origination, processing, administration, or other things that lenders usually charge. There are no fees for these things. Because buyers don’t have to wait for lenders to give them money, they may be able to close faster and move in sooner than they would with a traditional loan.
Purchase-Money Mortgages can help sellers.
The seller may get the full list price or more for a home if they get a loan to buy it. The seller may also pay less in taxes if they make a down payment on a home over time. Payments from the buyer could help the seller have more money to spend each month. Sellers may also earn more money than they would in a money market account or other low-risk investments.
