purchase money mortgage

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Sometimes, a person buying real property gives the seller a mortgage on the property as part of the deal to buy the property. This is called a purchase money mortgage, because this type of mortgage usually replaces part or all of the cash that the buyer would otherwise pay the seller. For example, a buyer might pay for a $500,000 house with a $400,000 bank mortgage, $60,000 in cash, and a $40,000 purchase money mortgage.

Purchase money mortgages have higher interest rates than traditional bank mortgages. They are often used by buyers without enough savings to cover a traditional down payment, or who cannot get a large enough bank mortgage due to poor credit.