Purchase Money Mortgage

A loan used to purchase the real property that serves as its collateral is called a purchase money mortgage or, in trust deed states, a purchase money deed of trust. Most real estate loans made in connection with a sale fall into this category. For example, an investor buys a $2 million apartment building with a cash down payment of $400,000 and the cash he receives from a $1.6 million mortgage loan for which he pledges the building as security. The $1.6 million loan is called a purchase money mortgage. 

A purchase money mortgage or deed of trust is also created when a seller agrees to accept part of the purchase price in the form of a promissory note or bond accompanied by a mortgage or deed of trust. For instance, suppose that you are interested in buying a $100,000 farm. The seller owns the property free and clear of all debt and offers to deed title to you if you give him $20,000 in cash and your promissory note for the remaining $80,000, secured by a mortgage against the farm.

Purchase Money Mortgage To Loan-To-Value