If you can refinance with a credit union, you surely can apply for a mortgage there. A credit union mortgage is advantageous with lower fees and rates and possibly rewards for first-time homebuyers. Let’s examine if getting a mortgage from a credit union is the right path to homeownership for you.
Credit unions vs banks
Credit unions act like banks; they offer a number of financial products to individuals and businesses. They often carry mortgage loans, car loans, student loans and personal loans. But credit unions are quite different from banks because they are:
- Membership-based. Membership at the credit union is based on a certain affinity such as community, work, religion, and so on. While credit unions target a specific group, they may allow anyone with a family member who is already a member to join.
- Non-profit. Unlike traditional financial institutions like banks that generate revenues for their shareholders, credit unions exist to meet their customers or members’ need for a home, personal finance and other personal banking products.
- Synergy. Credit unions’ presence is more felt with ATMs in convenience stores than actual physical locations. Plus, they have a network with other credit unions to allow their respective customers to do banking and other transactions at affiliated credit unions.
How does a credit union mortgage fare with that of banks?
Let’s us look at these criteria for judging:
- Rates and Fees
- Underwriting and Servicing
Credit unions can originate mortgages at lower fees and rates. Their financial structure allows them to offer services and products that are affordable to their members.
They also don’t rely heavily on advertising, which practically lessens their overhead costs that get passed on to customers. Indeed, as a credit union expands its membership, the more it can spread out the costs and pass on more benefits to its members.
These member-based credit unions are more welcoming to people with bad credit or borrowers with nontraditional credit profile. Notwithstanding differing lending practices with banks, this leniency on the part of credit unions extends to people with low and mid-sized income.
And if you are a first-time homebuyer, you may be entitled to perks and rewards unique to your credit union. One credit union, for example, offers a refund on certain costs you incurred while taking out the mortgage.
Nevertheless, credit unions with their targeted customer base offer products tailor-made to that demographic. This means that they may have not mortgage products as varied as that offered by banks.
Moreover, a credit union may be slower to originate loans compared to banks with their automated systems. But throughout the life of the loan, you can be sure whom you are sending mortgage payments to because loans often stay with credit unions compared to banks that may have sold those loans or have a third party collect the payments.
Should you go with a credit union for your mortgage then?
- If you want lower borrowing costs and stability (having the same loan servicer), then you may opt to take out a mortgage with a credit union.
- If you want a speedy loan closing, a bank-originated mortgage may be for you.
- Regardless of which you end up with, always shop for the best rates and loan products.
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.