When you’re looking for a mortgage loan, credit union vs. bank is a key question. Each option comes with pros and cons.
Here’s an overview to help you make the right choice for your situation.
Key Points
• Credit unions and banks have similar mortgage approval processes, and both offer various mortgage types.
• Membership criteria can limit credit union accessibility, whereas banks are generally open to most customers.
• Credit union mortgage rates vs. bank rates tend to be lower, and credit unions offer benefits like fewer fees and personalized service.
• Credit unions may offer limited loan options and fewer branch offices compared to larger banks.
• Borrowers should compare rates and consider their individual needs when they’re looking at credit unions vs. banks for mortgages.
How Credit Union and Bank Mortgages Are Similar
In many ways, banks and credit unions can be quite similar as mortgage providers. At a high level, approval processes are the same at each type of financial institution. Each will have mortgage underwriting guidelines, and after a borrower applies, the loan will be reviewed and approved, suspended, or denied. Plus, both may offer mortgage preapprovals.
Below are more similarities.
Application Process
As you look at credit union mortgages vs. bank mortgages, you’ll see that both typically offer you multiple ways to apply for a loan, including in an in-person appointment at a branch office, over the telephone, or online on the organization’s website.
Types of Mortgages
Generally, you’ll be able to apply for many different mortgage types at a bank or a credit union. Common types of home loans include fixed-rate and adjustable-rate loans as well as conventional and government-insured loans (such as FHA and VA mortgages).
One-Stop Shop for Finances
Both credit unions and banks usually offer a range of financial services, so you can also turn to them for savings and checking accounts, personal or auto loans, and CDs, among other services.
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Differences Between Credit Union and Bank Mortgages
While there are similarities between bank and credit union mortgages, there are also differences to be aware of.
Membership
Banks are typically open to serving most customers, but credit unions are meant for their members. There can be membership criteria – such as living in a certain area or being a member of a specific profession – that can limit the credit union options open to you.
Loan Options
When it comes to options among mortgage loans, credit unions vs. banks may have a disadvantage. Major national banks may have more loan choices available than credit unions, which tend to be smaller institutions.
Profitability
Banks are generally for-profit businesses, and aim to make money for their stockholders. Credit unions, on the other hand, are generally non-profit organizations.
Underwriting Process
Banks, especially large ones, often follow strict underwriting guidelines. Credit unions, which tend to be smaller and more local, may underwrite loans locally, giving them a fuller picture of their members’ financial situations, and may be able to be more flexible
Benefits of Getting a Credit Union Mortgage
Are credit unions good for mortgages? In many ways they are. While a bank has stockholders, a credit union consists of members (account holders) who more or less serve in this same role. A bank must satisfy its investors by making a profit; credit unions don’t have that obligation, so they can return those dollars to members through more attractive interest rates, lower fees, and more.
To enhance their members’ financial wellness, credit unions typically provide the following benefits.
Looser Approval Criteria
In general, credit unions may approve more loans in the lower- to middle-income range for their members. And if your credit scores are less than ideal, a credit union loan is sometimes the better choice.
Lower Interest Rates
Overall, credit unions offer lower rates on their mortgage loans. To estimate how much money this may save you, use a mortgage calculator.
Fewer Fees
Credit unions can pass on savings to members through lower fees as well as lower rates.
The Personal Touch
Because credit unions are less likely to sell their mortgage loans to a third party, a borrower is more likely to know the loan servicer (the credit union). This can lead to more personalized service.
Local Market Knowledge
Since a credit union is typically more local, with ties in the community, you’re likely to be working with a loan officer who is familiar with your area, what’s typically available, and what the going rates for different kinds of homes are. This knowledge can help you find and make a fair offer on your home more easily.
Recommended: How Does the Mortgage Preapproval Process Work?
Disadvantages of Getting a Credit Union Mortgage
Are credit unions better for mortgages? That depends on your needs and preferences. Credit union mortgages also have downsides.
Membership is a Must
In most cases, a borrower must meet certain requirements to join a credit union. This can include living in a certain community, belonging to a certain profession, or otherwise having the appropriate affiliation.
Fewer Locations
Usually, credit unions have fewer branches, which can limit their geographical range. So when you’re away from home, outside the credit union’s range, it may be harder to conduct all the financial transactions you might like. For example, the ATM network may be smaller and less convenient.
Stale Tech
Because credit unions are often more local institutions, they typically won’t have the up-to-date technology found at larger banks. So if a borrower wants first-class online and mobile banking, credit unions may not be the best choice.
Limited Menu
Credit unions may offer fewer financial products, especially on the savings and investment side. They may only offer checking and savings accounts, for example, plus credit cards. Although that may not affect a borrower’s ability to get a mortgage, it can limit what other products they can benefit from at the credit union.
Possibly Higher Interest Rates
Sometimes credit unions can’t compete with banks, especially when a large bank offers especially good interest rates. So be sure to compare rates if you’re looking for the most attractive ones.
💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.
Benefits of Getting a Bank Mortgage
Getting a home loan at a bank has its upsides, including the following.
Variety of Services
Banks often offer a significant range of savings, lending, and retirement-related financial products, making it easier for a borrower to have an all-in-one financial institution.
Multiple Branches and ATMs
Banks, especially national ones, will typically allow you to have access to multiple branches in more locations as well as a larger ATM network. This can make for a more convenient experience.
New Tech
Banks are, overall, more likely to have the latest in banking technology, including the ability to bank online and to use more sophisticated mobile apps.
Access to Loan Products
Because they tend to be larger and serve a broader population, banks often have a wider range of loan products available to their customers, like jumbo loans.
Disadvantages of Getting a Bank Mortgage
Drawbacks of getting a bank home loan can include the following.
Higher Interest Rates
Banks need to generate profit for stockholders — and credit unions don’t — so banks may charge a higher rate on home loans. But this isn’t universally true, so it’s always a good idea to compare rates.
Higher Fees
In general, banks charge higher mortgage fees than credit unions do. Although not always true, this is something to investigate.
Less Personalized Customer Service
Because credit union membership tends to be smaller and more local, bank customers may receive less personal service, especially when using a branch outside their more typical one (perhaps while traveling). Plus, banks are more likely to sell mortgage loans to a third-party loan servicer.
With any lender, bank, or credit union, a house hunter should feel at ease asking a range of mortgage questions.
Recommended: Tips on How to Shop Around for a Mortgage Lender
How to Choose the Right Mortgage Lender
Whether you’re better off with a mortgage from a bank or a credit union depends heavily on your situation and preferences.
First, consider what kind of experience you want. If you’re looking for a wide network of services and many different loan options, a bank may work for you. If you’d like a more personalized approach that could involve less rigorous qualifications and allow you to tap into local expertise, a credit union may be the better option.
You’ll also want to consider the cost. Though credit unions may typically offer lower rates, costs, and fees, that’s not always true, so it’s worth looking around and comparing.
Finally, you may want to factor in convenience. Banks typically have more branches and more up-to-date tech options, but credit unions may more easily allow you to develop ongoing relationships with local loan providers who understand your situation.
Taking all these factors into account, you can make an informed decision about what option will best suit you.
The Takeaway
Thinking about a credit union mortgage vs. a bank mortgage? Each has its upsides and potential downsides. If you’re a borrower looking for a home mortgage loan, explore the pros and cons to make the right choice for your specific situation.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
FAQ
Is it better to get a mortgage at a credit union?
Not necessarily. It’s a good idea to look into what each route offers before making the right choice for you.
What are the disadvantages of credit unions?
Credit unions tend to be smaller and more localized than many banks, so disadvantages can include fewer locations, a smaller ATM network, and more limited financial products. Borrowers must qualify to become a credit union member; technology probably won’t be as modern as that at a larger bank; and, in some cases, rates can be higher.
Are credit unions safe for mortgages?
The National Credit Union Administration insures deposits of up to $250,000 at all federal and some state credit unions, protects the members who own credit unions, and regulates federal credit unions. Eligible bank accounts of the same amount are insured by the Federal Deposit Insurance Corporation.
Can I take out a HELOC or second mortgage through a credit union?
Not all credit unions offer the same products, but many of them do offer home equity lines of credit and home equity loans.
Do credit unions have better mortgage rates than banks?
Sometimes credit unions have better mortgage rates than banks, but that isn’t always true. In some cases, large banks may be able to offer lower rates, so it’s always worth shopping around and comparing credit union mortgage rates vs. bank rates to find the best terms you can get.
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