Credit Union Mortgage Vs. Bank Mortgage

Although less common than bank loans, credit union mortgages are a viable option.

Although less common than bank loans, credit union mortgages are a viable option.

If you are planning to buy a home you will have to decide which lender to use for your mortgage and the two most common options are traditional banks or credit unions. Both options will get you the money you need, but each has its perks and drawbacks, some of which may be significant enough to help you make that decision more easily.

Terms

The fees charged by banks are typically higher than those charged by credit unions for the same type and size of loan. Since credit unions are designed only to earn as much as is needed to exist and not to make a profit, they return the extra funds they earn to members in the form of increased interest or reduced fees. All this means that your credit union home loan will likely come with lower closing costs and origination fees. Credit union mortgage rates also tend to be lower than traditional banks although the difference may not be as drastic as you might like. A few tenths of a percent may not seem like much but it can amount to a large savings over the life of the loan.

Approval Process

It is typically less difficult for applicants to get approved for a mortgage through a credit union than it is with a bank. Since they are not corporations that must adhere to a centralized set of rules and restrictions they are more able to work with non traditional types of income and clients with a less than perfect financial background. If you have a low credit score, past loan defaults, are a freelancer or otherwise self employed, a credit union may be more easily approachable and happy to work with you than a traditional bank. Since many credit unions cater to union members and certain types of employees, special courtesies are sometimes extended such as loan tailored to the pay level of your current position within the company.

General Philosophy

The goal of any bank in any situation is to make money. The terms of mortgages, risks taken and approval of borrowers reflects this approach. Credit Unions are more concerned with keeping risk low, keeping clients happy and working to custom fit every product so it works out best for both parties. While most banks stick with the standard 15 or 30 year mortgage, credit unions are sometimes willing to take it up to 40 years or rearrange interest payments if it benefits the customer's current situation and it comes with a low risk of default.

Shop Around

Your mortgage will essentially be the same whether you choose to apply with a traditional bank or a credit union. Each institution is free to create its own loan terms and fees and no one option will be cheaper than the other every time. Credit union loan costs may vary by location and membership and banks are always repositioning themselves to be competitive in the market. Shop for your loan in banks and credit unions and compare at least six different contenders head to head. You will typically find far more banks and bank branches where mortgages are issued than you will credit unions so your geographic location may influence the search somewhat. In the end whichever can give you the most for the least is probably the one to use.

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