What does the term "purchase money mortgage" commonly refer to?

The term "purchase money mortgage" refers to a loan that is taken back by the seller as part of the sales price during a real estate transaction. This arrangement often occurs when the buyer does not secure sufficient financing through traditional lenders and the seller agrees to finance part of the transaction, typically to facilitate the sale. In this situation, the seller effectively acts as a lender, allowing the buyer to make payments over time, thus directly linking the loan to the purchase of the property itself.

This form of financing can be advantageous for both parties: the buyer can acquire the property even with limited financing options, while the seller can potentially receive a higher price or sell the property more quickly. The purchase money mortgage has specific legal characteristics, differing significantly from other types of loans, such as refinance loans or loans used to finance additional properties.