How And Why To Consider A Purchase Money Mortgage

Posted by Joe Manausa on Sunday, March 30th, 2008 at 2:55pm.

Do you want to buy a home and have good enough credit to purchase the home, but are currently short of the cash needed for the down payment?

I received so much feedback on The Creative Cure For Selling Your Home article that I decided to follow it up with a "how and why" to consider a Purchase Money Mortgage when selling your home.

So what is a Purchase Money Mortgage?

purchase money mortgageSometimes a buyer wants to buy a home and has good enough credit to purchase the home, but is short some of the cash that the lending institution will require to close the loan. In cases like this, the Seller can hold a note for some of the cash and secure it as a secondary lien on the home. When this is done, we refer to the Seller's second a Purchase Money Mortgage. Let's consider an example on how this could work.

Mr. and Mrs. Smith would like to buy a Tallahassee home. They find that Mr. and Mrs. Jones have the perfect home for sale in Tallahassee and it is priced at $250,000. The Smith's go to the bank and discover that the bank will lend them $200,000 to purchase the home, all the Smiths need to do is invest $50,000 ($250,000 price - $200,000 loan = $50,000 down payment).

The Smiths look at all of their sources of money and discover that they can only raise $35,000, leaving them $15,000 short. So, working with an excellent and creative Realtor in Tallahassee, they make the following offer:

At closing, the Smiths get $235,000 as well as a note from the Joneses for $15,000. This creative solution is simple and creates a large market for the Smith Home. Rather than have to lower their price to attract more buyers, the Smiths have attracted more buyers by making the house more affordable (not only to people with large cash reserves).

In today's market, Tallahassee homeowners need to consider all the creative solutions possible to sell a Tallahassee home. If you want to know more about how to buy a house with a purchase money mortgage, simply drop me a note to schedule a time to get you started on your way to home ownership.


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Joe Manausa is a real estate investor and the Broker and Co-Owner of Joe Manausa Real Estate. He can be reached via e-mail through the Tallahassee Real Estate Website or catch his latest writings on the Tallahassee Florida Real Estate Blog , or by calling (850) 386-2001.

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Joe Manausa, MBA is a 26 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.

4 Responses to "How And Why To Consider A Purchase Money Mortgage"

troy wrote: Can a purchase money mortgage be set up with payments to last as long as the life of the mortgage holder sort of like the same concept as a reverse mortgage only title would transfer in Florida

Posted on Sunday, November 4th, 2012 at 12:49pm.

Joe Manausa, MBA wrote: Yes Troy, a purchase money mortgage can be as creative as seller and buyer are willing to be.

Posted on Sunday, November 4th, 2012 at 12:50pm.

Tish wrote: "Yes Troy, a purchase money mortgage can be as creative as seller and buyer are willing to be."

Nope, the lender has to approve the "creativity" so it can't be too fancy or unusual. Right Joe?

Posted on Thursday, June 20th, 2013 at 2:35pm.

Joe Manausa, MBA wrote: Hey Tish, only if by "the lender" you mean "the seller."

Posted on Thursday, June 20th, 2013 at 4:48pm.

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