You have many options for getting a mortgage, and it’s not just the big lenders or the regional banks. Credit unions are also increasing their participation in the mortgage market. Not only do credit unions offer competitive loan terms and a more personalized customer service experience, but they also present more flexible loan criteria in some cases. However, a traditional bank might be a better choice, depending on your financial situation. If you’re trying to decide between a credit union or a bank for your mortgage, here’s what to consider.
What is a Credit Union Mortgage?
In short, a mortgage from a credit union is a loan product you can use to finance a home if you can’t afford to pay cash for it. If you are approved for a credit union mortgage, the lender will pay the seller directly and you will make installment payments to the lender over time.
Benefits of Getting a Credit Union Mortgage
“More and more people are learning that they can find the best deal and service in town at a credit union,” says Curt Long, chief economist and vice president of research for the National Association of Federally- Insured Credit Unions (NAFCU). .
The benefits of getting your mortgage through a credit union include:
Credit unions are known for their lower fees. You’ll likely see lower fees and rates at credit unions as they pass the savings on to their members.
This is different from banks, whose sole purpose is usually to generate income for investors, says Bob Dorsa, former president of the American Credit Union Mortgage Association in Las Vegas. “The ‘shareholders’ (of a credit union) are themselves the members, the customers,” says Dorsa.
If you’re looking to get the best mortgage rate possible, chances are you’ll find it at a credit union.
“On average, credit unions offer lower rates on mortgages,” says Long.
Remember that even a slightly lower rate can have a big impact on the interest you pay over the life of the loan.
Better customization and service
Credit unions are known for their superior service, Long says. For example, you are more likely to know your repairman.
With bank mortgages, it is common for the company collecting your mortgage payments to change several times during the life of your loan. This is generally not the case with credit union mortgages.
“Credit unions keep a higher share of the loans they originate in their portfolio than other lenders, where it’s more common to sell the loan and its service to a third party,” says Long. “Credit union borrowers are more likely to maintain the relationship they establish with their lender throughout the life of their loan.”
Sticking with the same repairer can save you from late fees that could arise due to confusion about where to send your payments.
Additionally, credit unions can provide more specialization and advice regarding the type of loan you need. Navy Federal Credit Union, for example, specializes in veteran loans and provides step-by-step guidance for those looking for a VA loan.
If you have less than stellar credit, you may have better luck getting a mortgage from a credit union than from a bank.
Potential buyers who don’t have a traditional profile, such as a great credit history, can qualify for a mortgage with a credit union, says Long: “(Credit unions) are more likely to give lower and middle income loans than other originators.”
Disadvantages of Getting a Credit Union Mortgage
According to Rich Arzaga, founder and CEO of Cornerstone Wealth Management in San Ramon, California.
Disadvantages of getting a mortgage through a credit union include:
In banks, generally anyone with the right credit conditions can apply and qualify for a loan. Credit unions, on the other hand, require you to be a member.
“Many credit unions have membership requirements based on their target market,” says Arzaga. If you do not meet the conditions, you will not be able to obtain a mortgage from this credit union.
That said, joining a credit union isn’t always as difficult as you might think. There are specific credit unions for alumni associations, communities, houses of worship, and other types of memberships.
Some credit unions, like PenFed Credit Union, even offer national membership to anyone who wants to join.
If you’re looking for a lender with a top-notch online experience or intuitive technology, you might want to consider an online bank or institution rather than a credit union.
“For those who prefer to use technology to track their finances, credit union technology lags behind,” says Arzaga.
Technology functionality becomes an important consideration because credit unions don’t have as many local branches as regional or national banks, Arzaga says. This can be difficult when trying to access funds from out of state or country.
“This technology gap becomes more apparent when a borrower wants to use an app that brings financial matters together in one place,” says Arzaga. “Linking credit union accounts is not possible in some cases.”
Limited Branch Access
In general, most credit unions have a smaller geographic footprint than national banks.
Banking in an institution that does not have a national presence makes it more difficult to access funds when operating outside its core area, especially if credit union technology is lacking.
Some credit unions have a shared banking network with wide access to ATMs, but this is not always the case.
Potentially higher overall cost
Although they often offer great rates to their members, sometimes credit unions simply cannot compete with the big banks.
“For those inclined to shop only at credit unions, the biggest downside is that banks periodically offer significantly lower mortgage rates,” says Arzaga. “When combined with minimum deposits that will lower the interest rate, the difference can be significant.”
It is therefore important to shop around with credit unions and banks for mortgage rates.
Credit Unions vs. Bank Mortgages: How to Choose the Right Lender
Banks are a big part of the mortgage market, but don’t overlook credit unions when looking for a lender. These member-owned institutions offer a number of benefits, such as reduced rates and fees and exceptional customer service.
“Credit union loans are a resource for those who want to avoid backing banks (this is a strong preference for some), prefer a personalized experience, and are looking for preferential rates,” says Arzaga.
However, a bank might be a better choice if you are not a member of a credit union or prefer a financial institution that leverages technology to provide a more seamless lending and loan management experience.
Be sure to shop around with several different lenders and choose the one that best suits your needs and financial situation.