Purchase Mortgage

A purchase mortgage is another name for seller financing or, if you prefer a private mortgage loan or a private loan note. In the usual process of purchasing a house the buyer organizes a loan from a mortgage lender or perhaps through a mortgage broker. From the point of view of the seller it doesn’t really matter. In fact, from the seller’s point of view, once the transaction is completed, it doesn’t really matter whether there is a mortgage or not, or if the buyer has actually paid cash (there are some differences in the process of closing the transaction, but not in the final outcome). For the seller gets his money and moves out of the house. All terribly simple from his point of view.

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A purchase mortgage is very different indeed. In this case the seller offers the mortgage to the buyer himself, which is why it is sometimes called seller financing. Instead of there being a mortgage lender involved, the buyer simply makes the mortgage payments to the seller over the next 15 or 30 (or however many they agree upon) years. There are occasions when this will make good sense for the seller, for example, if they are retiring. Imagine that the current federal interest rate is 5%. If they receive cash (whether from a mortgage from a lender or from cash itself) and they put the money into a bank they might get 4% in interest (just as an example). But the buyer might be willing to pay 6%, because that is what they would have to pay a mortgage lender. So the sellers can get a higher income by offering the mortgage themselves.

A full purchase mortgage of this type is actually quite rare. More common is a purchase mortgage which is a second one. 70% or 80% of the money comes from a regular mortgage and then the rest in the form of seller financing, or a purchase mortgage, from the seller.