A loan is a debt that you borrow from a lender for a specific amount of money, which you repay with interest over the course of a set number of years. A mortgage is a secured loan that has some type of property tied to it as collateral to protect the lender in case you fail to repay your debt.
When you apply for a loan, your lender will look at your full financial profile – including your credit score and income, assets, and debt – to determine whether you’re a good candidate for the loan and how much they’ll lend you. Lenders may also look at your debt-to-income ratio, which is the percentage of your total income that goes toward housing expenses and other debt.
What is the difference between loan and mortgage?
Mortgages are loans that are secured with real estate, typically a house. They offer a lower interest rate than personal loans, which can be unsecured, and they often have longer terms.
Home loans are mortgages used to purchase a new house or can be used to refinance an existing mortgage http://toprankinmortgages.com/. They are a common option for first-time homebuyers because they usually require only a small down payment, which jump-starts your home equity and covers most of the purchase price.
When shopping for a mortgage, it’s important to focus on a loan that will be affordable for you given your other priorities – not just how much you qualify for. It’s also smart to shop around – Freddie Mac’s research shows that soliciting even one additional offer can save borrowers $1,500 on average – because interest rates can vary from lender to lender.