What is a Purchase Money Mortgage?
If a married person wants to purchase a property without their spouse being on the loan OR on title, they can classify the transaction as a purchase money mortgage. This also means that spouse does not need to sign any of the closing documents.
The non-borrowing spouse would still have a marital interest in the property of course, but the key is they would not be on the loan (responsible to pay the loan back to the bank) and they would not be in title. It goes back to the 1 to buy 2 to sell rule of thumb.
This designation is used in multiple scenarios, one of which being when 2 people are getting divorced and the exiting spouse wants to purchase another property prior to the divorce being finalized. (By the way, I specialize in mortgage transactions surrounding divorce if you ever have any questions or clients who need experience in this area.)
As a side note, if you google “purchase money mortgage” you will see the definition as being when a seller provides the financing to the buyer (i.e. seller financing). These 2 definitions of purchase money mortgage are simply separate definitions for the same phrase.