What is a Purchase Money Second?

A Purchase Money Second refers to a second mortgage that is specifically taken out to help facilitate the purchase of a property. This type of mortgage can be beneficial for buyers who may not have enough funds for a down payment or who want to avoid private mortgage insurance (PMI) associated with lower down payments on the first mortgage. The notion of eliminating mortgage insurance ties closely to why borrowers might choose to take a Purchase Money Second.

In this context, a second mortgage allows the buyer to leverage additional financing beyond the first mortgage, potentially reducing the overall loan-to-value ratio. This reduction could lead to not requiring mortgage insurance, as lenders often impose PMI when the down payment is lower than 20% of the home’s purchase price. Thus, the correct answer encompasses the primary purpose of a Purchase Money Second as a tool to effectively minimize or eliminate mortgage insurance costs when purchasing a home.