Buying your first home can be one of the most exciting milestones in your lifetime. But it’s not as simple as picking your dream home in your ideal neighborhood, putting some money down and taking the keys. Home buying is a thorough process that involves meeting the requirements to take out a home loan or mortgage.

But what exactly is the difference between a home loan and a mortgage? Mortgages and home loans are both methods of borrowing that require you to use your home as a type of collateral to back the debt you’ve accrued by buying a home, according to Investopedia. They are similar in some ways, but also very different. A mortgage is a type of loan, but a loan isn’t always a mortgage.

Let’s take a closer look at the main differences between a home loan and mortgage to determine which option makes the most sense for you:

Home loan vs. mortgage: Defining the terms

Home loans and mortgages are often considered interchangeable terms when in reality they’re actually not quite one and the same. Here’s the breakdown:

Home loan

This is the money given to a soon-to-be homeowner from a lender that gives them the funding needed to make the purchase. Borrowers often work with an agent to calculate how much they can afford to borrow vs what the monthly payment will look like. This is often determined by the type of home loan acquired as well.


A mortgage is a legal document that protects the lender. When the lender gives out a loan for a home, they use the property as collateral for protection. This means that if a homeowner doesn’t keep up with payments, resulting in a default against the loan, the bank has the right to sell the property and use the money gained on the home to pay off the debt. If you don’t have any issues paying your lender back, the mortgage will be gone as soon as the home is paid off in full.

Types of home loans and mortgages

Homeowners have the option to choose between conforming loans and non-conforming loans. The main difference between the two is the conforming loans have strict guidelines when it comes to the application process: A higher credit score and down payment amount are generally essential to securing this type of loan. Non-conforming loans are more flexible in terms of credit scores, down payment amounts and loan limits.

Common loans and mortgage types include:

  • FHA loan
  • VA loan
  • USDA loan
  • Jumbo loan
  • Conventional loan
  • Fixed-rate mortgage
  • Adjustable-rate mortgage

Reverse mortgages and home equity

Once you’ve established yourself as a homeowner, you can also consider options like reverse mortgages and home equity loans.

Reverse mortgage
A reverse mortgage is described exactly as you would expect — instead of paying the lender every month, the lender pays you by converting your home equity into payments. According to the Federal Trade Commission (FTC), there are three different types of reverse mortgages:

  1. Single-purpose mortgages
  2. Proprietary reverse mortgages
  3. Federally-insured reverse mortgages

Reverse mortgages are great options for someone who wants to pay off their mortgage, have a secondary source of income or pay off health care-related debt. This money is generally considered tax-free, and you typically don’t have to pay it back for as long as you live in the home. 

Home equity

A home equity line of credit is a type of mortgage essentially used to consolidate debt that’s at a high-interest rate. It enables you to get a loan with a lower interest rate so you can pay off personal debts without picking up a secondary source of income. The biggest difference between gaining a home equity line and a traditional mortgage is that you get the funds after purchasing the home. The amount of the loan is determined by the difference between the existing balance on the mortgage as well as the current property value.

Applying for a mortgage or home loan

Gaining the home of your dreams starts with working with securing funds from a lender. The general process behind applying for a mortgage or home loan involves:

Doing the backend work in advance
Getting your credit score to a good place and saving toward your down payment shows your lender or mortgage broker that you’re in a good position to buy a home and make your monthly mortgage payment. Work on increasing your score by paying bills on time and build your savings up so you can approach a mortgage company with an idea of what you can afford.

Find the best mortgage lender

Shopping around for a mortgage lender is in your best interest as a borrower. This will ensure you can find the lowest interest rate, as well as reasonable fees and terms that work within your budget and expectations.

Choose a mortgage that meets your needs

There are quite a few options when it comes to home loans, which can be a lot to take in. Meeting with a mortgage broker during this process can help you navigate your different loan options and decide which terms will get you the best deal.

Get pre-approved!
Once you find the best mortgage lender for your situation, you can get pre-approved for a serious loan offer. This typically involves gathering a lot of documentation to a lender who will indicate that you are in good shape for a loan.

Working with Bungalo®

Mortgage and home loans can help you get the house you want, but the process that goes into securing a fair interest rate and getting the amount of money you need can be confusing, exhausting and downright overwhelming.

Thankfully, Bungalo takes the stress out of the rest of the homebuying process. In fact, we’ll work directly with any mortgage lender that you choose. Simply get your pre-approval letter and then you can make an offer. Did we mention you can submit your offer online in minutes? That’s right — no negotiations or bidding wars. It’s really that easy.

We’ll even provide an easy-to-navigate checklist for a quick and efficient closing process.

We make sure first-time homeowners feel good about their decision every step of the way. If you’re not familiar or completely comfortable with taking care of the buying process on your own, don’t worry. You’ll have a dedicated loan specialist who can help you through each step.

Don’t let applying for a home loan or mortgage keep you from finding the living space of your dreams. Are you ready to take control of the home buying process? Browse our website today to get started.

This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.

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