There are two definitions for purchase money mortgages.
1. The first is any mortgage used to purchase the property. This is important, since some states do not allow deficiency judgments on purchase money mortgages.
2. The second, and more common definition, is a mortgage given to the seller as part of the purchase price.
With all the programs now being offered, a person without a 20% down payment can usually still find a mortgage that fits his or her needs with PMI, LPMI, or a piggyback loan. However, sometimes you might be able to secure a purchase money mortgage from the seller. A seller may be willing to take a mortgage for some portion of the purchase price. There are many reasons why a seller may consider this. When mortgage rates were 20%, some sellers thought offering a 15% mortgage was a good investment. It was even recommended by some financial advisors for people retiring and moving to smaller, less costly homes. Another consideration is that a buyer would not have to qualify for a 20% loan from the bank. The seller could accept anyone he or she wanted, allowing the sale to go forward.
If you are in a situation in which seller financing is offered, remember that there are no guidelines. As long as the transaction does not violate any laws, whatever you agree to is binding. Always have a knowledgeable person review all documents before you sign anything. Be sure that you know the terms of the loan and prepayment penalties, if any.