Definition: Simply put, a purchase money loan is a loan used to buy a home. In some ways, it is easier to describe what a purchase money loan is not. It is not a loan that is taken out after you buy a home such as a home equity line of credit or a home equity loan. It is not a refinance mortgage. A purchase money loan is evidenced by the trust deed or mortgage a home buyer signs at the time the home buyer purchases the home.
A borrower can obtain a purchase money loan from a bank, a savings and loan, a credit union or a private source of funds, including from the seller who is selling the home. If the seller makes a loan to the buyer, it is called owner financing, but it is still purchase money.
A hard-money loan is a loan that is not purchase money.
