Nearly everyone would love to magically earn more money. Unfortunately, this isn’t a reality for most people. Therefore, there are situations in life where someone will need to visit a lender in order to qualify for a loan. That being said, there are many types of loans you could potentially qualify for. Entering into an agreement for the wrong type of loan isn’t recommended. In this post, you’ll learn how personal loans differ from mortgage loans.
Differences Between Mortgage and Personal Loans
Before visiting a lender, it’s understandable to want to be prepared. Many people confuse personal and mortgage loans, thinking they’re interchangeable. However, this isn’t true. Considering that, here are three major differences between mortgage and personal loans.
Maximum Loan Amounts
Statistics from March 2016 found that the average price of a home in the United States was about $186,000. Considering that, the average person isn’t going to have six figures in their account to outright purchase a home. Therefore, many people visit lenders in order to receive mortgage loans. The maximum loan amount for mortgages is often higher than what you would receive from a personal loan. On the other hand, personal loans have a lower maximum amount. In most cases, the maximum amount for personal loans is about $100,000. With that in mind, it’s generally not allowed for personal loans to be used towards the purchase of a new home.
There are many factors determining your interest rate. With that in mind, it’s important that you’re able to find a personal or mortgage loans with reasonable interest rates. Those with a good financial history might be able to receive personal and home loans with interest rates as low as 3%. On the other hand, those with previous credit issues might have to pay higher interest rates.
Terms of Your Loan
Generally speaking, the terms of a loan are how long you’ll be required to make payments. Personal loans are generally for smaller amounts of money. Considering that, these loans are known for shorter loan terms. Typical loan terms for personal loans usually range between one to seven years. Since mortgage loans are often for higher amounts, loan terms are longer. Mortgage loan terms can range anywhere between 10 to 50 years.
In conclusion, there are several differences between personal and mortgage loans. Speaking of mortgages, many buyers are trying to qualify for an FHA loan. If approved, this loan allows buyers to make down payments as low as 3.5%. However, the buyer would need a credit score at or above 580. Statistics from the 2017 NAR Home Buyer and Seller Generational Trends report found that 24% of buyers surveyed used an FHA loan to finance their homes. If all of this loan information seems overwhelming, you might consider visiting a mortgage company. In turn, you can speak with a professional to let them know about the type of loan you’re wanting to obtain.