Seller-financed mortgage created as part of a property sale, often used when the seller funds some or all of the purchase price directly.
A purchase-money mortgage is a seller-financed mortgage created as part of a property sale, where the seller funds some or all of the purchase price instead of requiring the buyer to rely entirely on a bank or other outside lender.
Purchase-money mortgages matter because they let a real-estate transaction close even when third-party financing is limited, slow, or too restrictive. They also give the seller a financing role that can change the economics of the deal through interest income, negotiated terms, and continuing credit exposure.
The seller transfers the property but keeps a lien or mortgage claim until the buyer repays the agreed financing. The loan can cover the whole purchase price or only the gap left after a down payment and any outside financing.
| Structure | Who provides the financing | Existing mortgage stays in place? | Main use case |
| — | — | — | — |
| Purchase-money mortgage | Seller | Not necessarily | General seller-financed sale |
| Wraparound mortgage | Seller | Yes, usually | Seller financing layered over an existing loan |
| Traditional new mortgage | Bank or other lender | No, old debt usually gets repaid | Standard purchase financing |
The regional term vendor take-back mortgage (VTB) is usually best understood as a purchase-money mortgage or close seller-financing variant rather than a separate modern canonical concept.
When reviewing Purchase-Money Mortgage, ask whether it changes collateral value, lien priority, property cash flow, borrower capacity, closing funds, servicing, refinancing, or recovery proceeds. If it does, tie Purchase-Money Mortgage to the loan file, title or contract evidence, underwriting ratio, and exit-risk assumption.
Seller Financing: The broader umbrella concept for seller-provided property financing.
Wraparound Mortgage: A seller-financing structure built around an existing underlying loan.
Subject to Mortgage: A different transfer structure where the old debt remains in place without the same formal new seller-financed note.
Promissory Note: The debt instrument often used to document repayment terms.
Lien: The seller’s claim on the property while the financing remains unpaid.