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What’s the Difference Between a Mortgage From a Credit Union Mortgage Vs. a Bank?

When you’re ready to buy a house, you don’t necessarily have to depend on your bank to get a mortgage. These days, consumers have a lot more options when it comes to obtaining a home loan, including credit unions.

While these member-owned cooperatives haven’t exactly been very popular in the mortgage realm, they are definitely taking steps to boost their presence in this market. An increasing number of consumers are becoming aware of the services that credit unions offer when it comes to home loans.

Should you look to a credit union for your mortgage? What exactly is the difference between a mortgage from a credit union versus the bank?

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Mortgage Fees and Rates

Credit unions are known for offering their membership base lower fees on their mortgages. Whatever savings credit unions are able to realize will be passed on to their members. They are not-for-profit organizations, which means savings for consumers come first before profits.

This differs from banks, which tend to be more focused on generating profits for investors. While your loan closing costs include expenses that are simply unavoidable – such as the cost of appraisals and title insurance – many financial institutions also charge origination fees that you need to pay for taking out a loan. These fees tend to be a lot higher with banks versus credit unions.

Interest rates also tend to be a bit lower with credit unions compared to banks. Many credit unions keep their mortgages in their own portfolios instead of selling them to outside investors like banks do. This gives credit unions more flexibility to offer better terms and rates.

Membership

Credit unions only give out mortgages to their own specific members. Each credit union has a limited membership roster. Certain unions will only allow members who work for specific companies, while others allow members based on geographical location. You can’t get a mortgage from a credit union if you can’t qualify to become a member.

These types of limitations don’t apply to banks. There’s no need to become a ‘member’ of a bank in order to get a mortgage, as long as you meet all the lending qualifications.

Qualifying For Home Loans

Since the housing crisis in 2008, lenders have really tightened the strings on home loans. These days, it’s much more challenging to get approved for a mortgage compared to a decade ago.

However, banks tend to have more stringent underwriting standards compared to credit unions. Borrowers with less-than-perfect credit scores will be more likely to get approved for a home loan with their credit union compared to the bank.

Potential homebuyers without a spotless financial history and excellent credit history can benefit from getting a credit union home loan. That means members with poor credit stand a better chance of getting approved for a mortgage from credit unions than banks.

Availability of Services

Banks offer just about every loan service under the sun, but credit unions might not have the same extent of services. Highly specialized loans products, such as investment commercial property mortgages, might not be offered at some credit unions. They may not be well-versed or outfitted with these particular transactions. Banks, on the other hand, may be the better option if a very specific type of loan is necessary.

Level of Service

Since the consumers being assisted at credit unions are direct members, they usually get more personalized and intimate service at these financial institutions versus banks. You’ll have the opportunity to get to know your lender better.

That’s in stark contrast to banks, which tend to sell their mortgages to investors. That means the home loan is no longer with the originating bank. Many borrowers don’t even know who’s servicing their loans after they’ve signed on the dotted line with banks. With bank mortgages, the company that collects your mortgage payments can change a number of times over the lifespan of your mortgage.

This isn’t typically the case with credit union home loans. By working with the same loan provider, you may be able to avoid late fees that could result from uncertainty about where your payments should be sent.

The Bottom Line

You can get excellent home loan services from both credit unions and banks, but it’s helpful to understand the differences between the two. Lending options vary from one institution to the next, and there are advantages and disadvantages to home loan options available through banks and credit unions.