When looking for a home loan, the two main choices of financial institutions are credit unions and banks. Each option comes with pros and cons.
Here’s an overview to help you make the right choice for your situation. You might start with general tips when shopping for a mortgage.
How Credit Union and Bank Mortgages Are Similar
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 loans). Most of the different mortgage types are available at both credit unions and banks.
At a high level, approval processes are the same at each type of financial institution as well. 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.
💡 Quick Tip: SoFi’s Lock and Look + feature allows you to lock in a low mortgage financing rate for 90 days while you search for the perfect place to call home
Differences Between Credit Union and Bank Mortgages
So, credit union or bank for mortgages? Beyond general similarities, differences exist. Let’s look at credit union mortgages and then bank home loans.
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 role. A bank must satisfy its investors by making a profit; credit unions don’t, 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. Plus, when 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.
Recommended: How Does the Mortgage Preapproval Process Work?
Disadvantages of Getting a Credit Union Mortgage
Are credit unions better for mortgages? That depends on a borrower’s needs and preferences because disadvantages of credit union mortgages also exist, including these:
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 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, this 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 these:
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.
Disadvantages of Getting a Bank Mortgage
Meanwhile, 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.
The Takeaway
Credit union vs. bank mortgage? Each has its upsides and potential downsides. Borrowers looking for a home mortgage loan can explore the pros and cons to make the right choice for their 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, costs 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 Corp.
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.
Photo credit: iStock/Lemon_tm
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
+Lock and Look program: Terms and conditions apply. Applies to conventional purchase loans only. Rate will lock for 91 calendar days at the time of preapproval. An executed purchase contract is required within 60 days of your initial rate lock. If current market pricing improves by 0.25 percentage points or more from the original locked rate, you may request your loan officer to review your loan application to determine if you qualify for a one-time float down. SoFi reserves the right to change or terminate this offer at any time with or without notice to you.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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