Purchase-Money Mortgage (PMM)
Definition and meaning of Purchase-Money Mortgage (PMM) in real estate.
A purchase-money mortgage (PMM) is a home loan issued by the seller of a property to the buyer as part of the purchase transaction, rather than by a traditional bank.
In more detail
Also known as seller financing or owner financing, this arrangement typically occurs when a buyer cannot qualify for a standard bank loan or wants to avoid high closing costs. The buyer makes a down payment and agrees to pay the seller regular interest and principal payments over a set term.
The seller retains a lien on the property, which allows them to foreclose if the buyer defaults on the payments. Because foreclosure laws and interest rate limits vary by state, these agreements require careful legal review.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Also known as | Seller financing or owner financing |
| Lender | The seller of the property |
| Risk factor | Seller must foreclose if buyer defaults |
An investor purchases a commercial building using a purchase-money mortgage where the seller agrees to finance a portion of the purchase price over a set term of years.
Frequently asked questions
How does a purchase-money mortgage benefit a buyer?
A purchase-money mortgage benefits a buyer by offering more flexible underwriting guidelines, lower closing costs, and the ability to buy a home without qualifying for a bank loan.
What is a major risk for sellers in a purchase-money mortgage?
The primary risk for sellers is that the buyer might default on the loan, forcing the seller to go through the expensive and time-consuming process of foreclosure.
Related terms
Sources & references
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