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Mortgage Vs. Loan: Which One Do You Need?

Miranda Crace5-Minute Read
UPDATED: January 02, 2024


While all mortgages are loans, not all loans are mortgages. That’s to say, mortgages and personal loans – two popular financial products – are similar in some ways, but used for different purposes and differ in various ways ranging from their applications to their repayment processes. Which of the two financing choices you go with will depend on how you intend to use the money and how much money you need.

Let’s take a closer look at the differences between a mortgage and loan so you can select the option most suitable for your needs.

The Difference Between A Mortgage And Loan

A loan is an amount of money that someone borrows and repays to a lender in installments over a period of time, with the borrower typically paying interest on top of the loan amount (as detailed in the borrower’s promissory note). A mortgage, or home loan, is a type of loan used to buy real estate, and it’s secured by the purchased land or house.

Other loans, such as personal loans, aren’t restricted to real estate and can help finance various purchases or expenses for their borrowers. Personal loans typically have a fixed interest rate, meaning their monthly interest rate will stay the same for the life of the loan. Fixed-rate mortgages are likewise an option, but an adjustable-rate mortgage (ARM) can change your monthly payment amount depending on housing market trends.

Since lenders typically offer personal loans in amounts of $1,000 – $50,000, you won’t be able to use a personal loan to finance a traditional house. It’s therefore unlikely that you would find yourself deciding between a mortgage and a personal loan. Still, understanding their differences will give you a better understanding of both loan types, including how they work and what they can be used for.

Personal Loan Vs. Mortgage: Key Differences

Mortgages and personal loans can both offer financing for large purchases, but they’re far from interchangeable. Here’s a closer look at the differences between a mortgage and a personal loan.


Personal Loan

Home Loan

Used for

Home improvement projects, debt consolidation, other large expenses or purchases

Buying a home

Length of term

1 – 7 years

8 – 30 years

Down payment

Typically none

Varies with the type of mortgage

Secured or unsecured

Typically unsecured

Secured by the purchased home

Loan amount

$1,000 – $50,000, depending on your debt-to-income ratio and credit score

Can depend on your income and credit score but typically more than $200,000

Closing costs

None, although there may be origination fees

3% – 6% of the loan amount

How To Get A Mortgage Or Personal Loan

What They’re Used For

While a mortgage is a loan that can help you buy a house, a personal loan can fund just about anything else. Popular uses of a personal loan include:

  • Home improvement projects: Borrowers can take out funds to put toward home improvement projects that would otherwise drain their finances. It’s important to correctly calculate how much you’ll need so you don’t borrow too much or too little.
  • Credit card debt consolidation: Debt consolidation takes all your credit card debt and converts it into a single monthly payment with a new loan, ideally with a lower interest rate. Consolidating your debt is often preferred over having multiple loans to repay at once.
  • Paying for other major purchases: A personal loan can finance other expenses as well, from medical bills to car repairs, along with weddings and vacations. It’s best to review your financial situation before deciding if you should apply for a personal loan.

Length Of Term

In most cases, a mortgage comes with a loan term of anywhere from 8 – 30 years. A personal loan, however, is more of a short-term loan that ranges from 1 – 7 years.

Down Payment

Often, you’ll need to make an upfront down payment on a home to qualify for a mortgage. The amount of your down payment will vary depending on multiple factors, but anything less than 20% of the purchase price on a conventional loan will require you to buy private mortgage insurance and pay a monthly PMI fee.

If a conventional loan isn’t a good option for you, a government-backed home loan such as a Federal Housing Administration (FHA) or Department of Veterans Affairs (VA) loan might be a better fit. Most FHA loans require only a 3.5% down payment, while VA loans don’t require one at all.

Since a personal loan isn’t often tied to a specific purchase, it usually won’t require any kind of down payment to qualify. Your lender will, however, likely charge an origination fee for processing your loan.

Secured Or Unsecured

As mentioned already, a mortgage is a secured loan that uses your house as collateral. If you default on your mortgage payments, you may lose your home through the foreclosure process.

Unlike a mortgage, a personal loan is most often an unsecured loan. This means it doesn’t require you to use a house, car or anything else you own as collateral. If you don’t repay the loan on time, your credit could take a major hit and the lender may pursue other options to collect the debt. A lender’s options for recourse can depend on the laws that apply in your jurisdiction.

Loan Amount

As mentioned earlier, a personal loan won’t allow you to borrow as much money as you can with a mortgage. Typically, the maximum loan amount you’ll ever see for a personal loan is $100,000, and that’s in rare instances.

Depending on factors such as your credit history, income and debt-to-income ratio (DTI), personal loan companies and platforms such as Rocket Loans℠ will allow you to borrow from $2,000 – $45,000. With a mortgage, you can borrow far more – usually at least $200,000 – but that, again, depends on your income and credit score.

Closing Costs

Another key difference between a personal loan and a mortgage is that a personal loan doesn’t involve closing costs. Once your personal loan is approved, you’ll receive your money in your account and begin repayment.

A mortgage will almost always have closing costs to pay at the end of the process, and these costs typically amount to 3% – 6% of the loan amount. Closing costs usually include fees related to appraisals, closing attorneys, escrow and more.

You can find all of the above information in your loan or mortgage disclosure.

How To Get A Mortgage Or Personal Loan

If you decide to get a mortgage or personal loan, the processes are fairly similar. With a mortgage, do your research and find a few lenders that might meet your needs. Then, contact a mortgage lender or another financial institution to get started on the preapproval process. Once you’re preapproved for a mortgage, choose the option that offers you the best interest rate and loan repayment term, submit a full application, and go through the home buying process.

Getting a personal loan involves a similar application process but is much more dependent on your credit score and DTI if the loan is unsecured, which is usually the case. Following an approval, you can expect to receive your funds within 1 – 7 business days.

If approved through Rocket Loans, you could potentially even get your money the same day.1

Alternative Types Of Loans

A personal loan isn’t the only type of loan out there. Other loan options include:

  • Home equity loans: A home equity loan can also be used for various expenses and is secured by the equity in your home. Failing to repay the loan, however, could result in you losing your home through foreclosure.
  • HELOCs: A home equity line of credit (HELOC) is a form of revolving credit also secured by your home’s equity, but instead of a lump-sum loan, you’ll have access to a credit line you can pull from for a period of time. As with a home equity loan, you risk losing your house if you can’t make your payments.
  • Cash-out refinance: You can use a cash-out refinance to not only refinance to a new mortgage and interest rate but also receive a lump sum of cash from your home’s equity. You can typically use this cash as you would a loan and use it to pay for home improvements or other expenses.

FAQs: Personal Loan Vs. Home Loan

Take a look at the answers to these frequently asked questions about getting a mortgage versus a loan.

Can I buy a house with a personal loan?

In most cases, it’s better to buy a home with a mortgage. If you’re seeking a single-family house that’s a couple hundred thousand dollars or more, a mortgage is your best bet. You’ll likely qualify for a larger loan amount than you would with a personal loan, and you’ll get a lower interest rate and longer term – likely stretching 15, 20 or 30 years. This way, you can really take your time paying off your house.

A personal loan can still help out with your home journey, though. For example, a personal loan can help cover moving expenses as well as renovations or additions to raise your home’s value prior to selling.

If you’re looking to buy a manufactured home, a personal loan can also be a potential loan option for this home type.

Can I use a personal loan for a down payment on a house?

Many lenders explicitly forbid the use of a personal loan to cover a home’s down payment. Lenders want to know that a buyer is financially stable enough to repay a mortgage, and using a loan to cover a down payment can be a sign that they’re not.

Can I pay off my mortgage with a personal loan?

If you want to own your home free and clear and don’t have the cash on hand to do so, you may be able to use a personal loan to help pay down your mortgage. If you already have a good interest rate on your mortgage, though, you may not want to risk having a higher rate on a personal loan.

If your goal is to pay off your mortgage early, other strategies can make that a reality. See if you can refinance your mortgage, apply lump-sum payments toward your principal, cut expenses or make payments biweekly rather than monthly.

Final Thoughts

If you’re on the hunt for a new home, you’ll need a mortgage unless you have the money to pay in cash. A personal loan can be good for a variety of other big purchases and will typically have a shorter term and consist of a smaller loan amount.

If you’re interested in a personal loan, you can get started today with Rocket Loans and see what rate and term you may prequalify for.

1Same-day funding is available for clients completing the loan process and signing the Promissory Note by 1:00 p.m. ET on a business day. Also note, the ACH credit will be submitted to your bank the same business day. This may result in same day funding, but results may vary, and your bank may have rules that limit our ability to credit your account. We are not responsible for delays that may occur due to an incorrect routing number, an incorrect account number or errors of your financial institution.

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Miranda Crace

Miranda Crace is a Senior Section Editor for the Rocket Companies, bringing a wealth of knowledge about mortgages, personal finance, real estate, and personal loans for over 10 years.