One of the most exciting changes in life is buying a new home. If you’re like most of us and not independently wealthy, you’ll need to find a lender. You’re probably already familiar with a traditional bank loan, but other financial institutions like credit unions also offer mortgages. Is there any advantage to choosing one over the other? While both credit unions and banks offer home financing products like fixed-rate or adjustable-rate mortgages, there are a few differences. Because credit unions are not-for-profit, credit union mortgage rates tend to be lower, and the terms are often more flexible. In addition, credit unions are known for more personalized service, member-focused lending practices, and a community-oriented approach to financing. To help you further explore your home financing options, we’ve put together some information below about the benefits of credit union mortgages and why you might choose one over a traditional bank loan.
Lower Interest Rates and Fees
When you’re in the market for a home loan, one of the first things you look at is interest rates. Banks are for-profit financial institutions, which means that a part of all their revenue goes to shareholders. To maintain profit margins, banks usually rely on higher interest rates or added fees. As not-for-profit financial institutions, credit unions don’t have shareholders to worry about. Instead, they can return profits to their members by offering more competitive interest rates and lower fees. Even a small difference in your interest rate can save you thousands of dollars over the life of your loan. In addition, credit unions are often able to reduce closing costs and origination fees, which can range anywhere from 2 to 5 percent of the sale price of the home. Lower closing costs and other fees can save borrowers a significant amount of money.
Personalized Service
In general, banks offer the convenience of having many branch locations and automated teller machines (ATMs) nationwide, but many are also larger corporations, which means their services are more transaction-focused and less personal. Because they operate on a larger scale, banks often have slower response times when it comes to processes like approving loans. Applications often move through several layers or get passed on to underwriting departments not in your state, which can result in an application taking several weeks to approve or deny. Since credit unions are typically more localized or serve specific communities, they tend to be more interested in creating personal, long-term relationships with members. Credit union members can expect one-on-one attention from loan officers. When you apply for a credit union mortgage, they want to understand your individual financial situation and your goals so that they can provide advice, support, and loan terms that are tailored to meet your needs. Decision-making is at the local level, rather than occurring out of state, which often speeds up the approval process. It’s not just about the initial application process either. Credit unions are more likely than banks to hold onto your mortgage instead of selling it to a third party, which means you can expect long-term support throughout the life of your loan from the local team that knows you and your financial goals.
Flexible, Member-Centered Lending Practices
While banks often adhere to standardized underwriting criteria to meet shareholder profit goals, credit unions prioritize serving their members. This member-focused approach allows credit unions to offer personalized service and consider the full picture of a borrower’s financial situation within the bounds of regulatory requirements. For example, credit unions may:
- Consider additional factors beyond credit scores, especially for borrowers who demonstrate current financial stability
- Work with members who have unique financial circumstances, such as self-employed individuals, first-time homebuyers, or those with non-traditional income sources
- Utilize in-house underwriting to provide a more personalized review process while adhering to lending regulations
- Offer tailored repayment terms or member assistance programs to support financial success
Community-Oriented Approach to Financing
Although some banks, especially community banks, support local initiatives and encourage employees to volunteer, the focus of traditional banks tends to be broader, particularly if they are nationwide or international. Part of the appeal of credit unions is that they are usually deeply embedded in and supportive of their local communities. This community-focused approach means they not only participate in local events but are also committed to the long-term financial well-being of their members, who are part of the community. Customer service is much more personalized, rather than feeling corporate or businesslike. Many credit unions offer financial educational resources and even special programs for local homebuyers, such as first-time buyer counseling services or even down payment assistance.
When You Might Choose a Traditional Bank Loan
Given all the benefits of financing your home through a credit union, are there circumstances where you might choose a traditional bank loan over a credit union loan? One determining factor might be that credit unions have membership requirements. To access a credit union’s financial products, including a mortgage, you have to become a member of that credit union. Credit union membership requirements vary but are usually based on where you live, where you work, or if you qualify through an associated association. Banks do not typically have membership requirements, so anyone can apply for a loan. Often, you don’t even need to have a savings or checking account at the bank to apply for other services. However, it’s usually easy to qualify at a credit union, and as a member, you can take care of all your banking needs at the credit union, enjoy personalized customer service, and qualify for better loan terms or discounts, especially if you have multiple accounts.
Learn More About Capital Credit Union’s Home Loan Options
Getting your mortgage through a credit union can be a great financial decision, especially if you can take advantage of lower credit union mortgage rates and fees, more flexible terms, and personalized service and long-term support. At Capital Credit Union, we’re always working to help our members achieve their financial goals, including realizing the dream of homeownership.
It’s easy to join. Once you’re a member, contact one of the helpful members on our mortgage lending team to discuss your home loan options and how they can help you from pre-approval through closing.