In this article, we'll discuss a credit union vs bank mortgage and why a credit union may be best.
So you’re ready to buy a home. Congratulations! Now, all you need is a mortgage. While this part of the process may seem overwhelming at first, there are some simple ways to rule out the mortgage lending options that don’t suit your needs best and hone in on the few that do.
When exploring options of places to take out a mortgage, there are more than just commercial banks to choose from. You can also consider an online mortgage broker, mortgage broker, mortgage bank, or credit union mortgage.
Only banks and credit unions, however, give you the advantage of working with the same institution where you already have your other financial services like a checking or savings account.
Keeping all your services with the same institution is often extremely advantageous for reasons of convenience, flexibility, and customer service, among others. For this reason alone, you can rule out online mortgage brokers, mortgage brokers, and banks off the bat. (There are also other disadvantages to these options, but that’s the subject of a different article.)
Credit Unions vs Bank Mortgage: Points to Consider
Now that you’ve ostensibly narrowed down your options to credit unions or banks, how do you choose between the two?
Consider these factors of a credit union vs bank mortgage:
Who Holds Your Loan
Banks are known for selling their mortgages to other lenders or third-party services. When this happens, you lose any access to the people you’ve been dealing with throughout the whole process of obtaining the mortgage and all the rapport you’ve gained with them.
Moreover, if that sold mortgage was taken out at the same bank where you already have other financial services like a checking or savings account, a CD or a safety deposit box, you lose all the advantages like convenience and quality of service that you’d intended to gain by keeping all of your financial services with the same institution.
On top of that, moving mortgages from one company to another is inconvenient in requiring you to start making payments to a new company and location. While switching mortgage servicers tends to occur smoothly and seamlessly, it can lead to a payment being posted late or a problem with escrow.
Unlike banks, credit unions do not typically sell mortgage loans to third parties. Rather than being interested in making a quick buck on the loan with a one-time fee, credit unions are more interested in making an ongoing income from mortgage interest.
Therefore, when you take out a mortgage with a credit union, the chances are huge that the same credit union will hold and service that mortgage throughout the life of that loan.
Credit Union are Easier to Get Approved
As member-owned organizations, credit unions are far more likely to approve mortgage applications from their members than banks are to approve those even from their customers. Also, if you have a lower credit score or less income or assets to qualify for a mortgage, a credit union is far more likely to find or customize a mortgage product to accommodate you. That’s because credit unions set their terms, unbeholden to outside investors who place strict restrictions on the rates and terms a bank can impose.
Moreover, if you’re already a member of the credit union where you apply for a mortgage, using other financial services such as personal banking of that credit union, you may be approved (or even pre-approved) based simply on your previous account history there.
And if you need to take out a home equity loan, a home equity line of credit or second mortgage to afford the home you want to own, a credit union is more likely to approve you for these supplementary instruments as well.
Credit Unions Can Offer Lower Rates
Credit unions typically offer lower mortgage rates with fewer mortgage origination and maintenance fees than banks. Partly, this is due to the fact that credit unions don’t pay federal taxes, so they don’t incur as many costs themselves to originate that mortgage as may a bank.
It’s also due in large part to the fact that credit unions aren’t designed primarily to make a profit for investors but to break even so they may continue serving their communities. By not being driven by the profit imperative, credit unions can offer more reasonable, customer-friendly rates and fees.
You can literally save hundreds or even thousands of dollars in closing costs, insurance, vendor fees, and other mortgage costs by going with a credit union over a bank.
Credit Unions Tend to Be More Personal
When you take out a mortgage, you tend to hold it for 10, 15, even 30 years or more. It can, therefore, be beneficial to build a relationship with the organization servicing your loan.
With banks, this can be next to impossible. Even if your mortgage isn’t sold from one third-party servicer or lender to another, commercial banks tend to be so massive you can easily get lost in the machine and be viewed as no more than a number even from within the same institution. Every time you call a bank to discuss your mortgage, you may well speak to a different person.
At a credit union, you are far more likely to deal with the same person or people every time you reach out. Credit unions are more likely to recognize you by name and treat you like a person.
Credit unions are also more likely than banks to associate incentives like rewards programs with their mortgages for certain segments of their membership, like those requiring mortgages with no-down-payment or first-time homebuyers.
Another aspect of better personalization that credit unions offer you over banks is more direct knowledge and experience in certain specialized types of loans affecting your community. For example, if you belong to a credit union with your university, that credit union may know more about the special types of mortgage options and services available to students and recent graduates.
If you belong to a credit union that caters to a specific geographic area, that credit union may be more adept at accessing local mortgage options and services catering to residents of that community. If you belong to a veteran-based credit union, similarly, that credit union may be more skilled at navigating VA loans.