Credit union vs. bank mortgage: how to choose
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Getting a mortgage might be the biggest debt you incur in your lifetime. So, it’s important to work with the right lender to make sure you get the best terms for your home purchase. Banks and credit unions both offer mortgages, but which is better?
Let’s review the similarities and differences between bank and credit union mortgages, as well as compare the pros and cons of each.
Both banks and credit unions offer fixed-rate and adjustable-rate mortgages.
Jump to insightCredit unions often have lower fees and interest rates than banks.
Jump to insightBanks typically have a wider variety of mortgage options than credit unions.
Jump to insightCredit union vs. bank
Credit unions and banks serve similar purposes, offering financial products like checking accounts, savings accounts and loans. However, they operate under different business models and structures.
Credit unions are member-owned, not-for-profit organizations. Any profits they make are returned to members in the form of lower interest rates on loans, higher interest rates on savings and reduced fees. Membership is required, and you may need to meet certain eligibility requirements, such as living in a particular area or working for a specific employer.
Banks, on the other hand, are for-profit businesses. Their goal is to generate revenue for shareholders through fees, interest on loans and other financial services. They typically have more branches, advanced technology, and a wider variety of loan options, but they often charge higher fees and interest rates.
| Credit union | Bank |
|---|---|
| Not-for-profit | For-profit |
| Profit returned to members through lower fees and better rates | Profit retained for shareholders |
| Membership required | No membership required |
| Lower loan rates and fees | Higher loan rates and fees |
| More limited product variety | Wider range of product variety |
| Limited branches | More branches, broader reach |
Using a credit union for your mortgage
Getting a mortgage through a credit union often involves a more personalized experience compared to a traditional bank. Many credit unions take the time to understand your financial situation and goals before recommending mortgage products. The application process usually includes sitting down with a loan officer who can explain the different options, requirements and steps in detail. Since credit unions are member-focused, you may receive more guidance and support throughout the approval process.
Additionally, credit unions tend to be more flexible with certain approval criteria. If you have a lower credit score or unique financial circumstances, a credit union may be more willing to work with you to find a solution. This can make them an appealing option for first-time homebuyers or those who might not qualify for a loan through a larger, traditional bank.
Pros and cons of credit union mortgages
While credit unions offer reduced fees, the trade-off is often more limited service. Consider these pros and cons before taking out a mortgage with a credit union.
Pros
- Lower interest rates and fees
- Personalized customer service
- Personalized approval
Cons
- Membership required
- Limited branches and services
- Limited app functionality
Using a bank for your mortgage
When getting a mortgage through a bank, the process tends to be streamlined and efficient, often supported by advanced online tools and technology. Many banks allow you to begin your mortgage application online and track its progress digitally, making it a convenient option for tech-savvy borrowers. Because of their size and resources, banks usually have dedicated mortgage departments with specialists who can walk you through the process, answer questions and help you understand your options.
However, the experience can feel less personal compared to a credit union. Larger banks typically rely on standardized processes, which means decisions are based heavily on credit scores, income and other strict criteria. This can make it more challenging for borrowers with unique financial situations to get approved. Banks also tend to sell their loans to other lenders, meaning the institution you close with may not be the one servicing your loan long-term.
» LEARN MORE: Mortgage lender vs. bank
Pros and cons of bank mortgages
Banks may offer more variety, tech and access, but they’re less personalized and come with higher fees. Consider these pros and cons before taking out a mortgage with a bank.
Pros
- Wide range of mortgage options
- More branches offer convenient access
- Up-to-date apps
Cons
- Higher rates and fees
- Less personalized services
- Your loan might be sold
Factors to consider when choosing a mortgage lender
When borrowing hundreds of thousands of dollars, it’s important to choose your mortgage lender wisely. Here are a few things to consider when looking to purchase a home:
- Interest rates and fees: Mortgage fees can put a huge dent in your wallet, so finding a lender with reasonable fees can save you thousands. Even getting a 0.25% lower interest rate on a 30-year mortgage can save you tens of thousands of dollars over the life of the loan.
- Loan terms: Make sure your lender explains (in detail) all of the terms of your loan, including how payments work, if the interest rate is fixed or variable and how amortization works.
- Loan eligibility: Before applying for a loan, know what the minimum requirements are for your lender. Make sure you know what the income, credit score and other financial requirements are before the lender pulls your credit report.
- Customer service: If your lender typically sells off mortgages to another company, it’s good to know this upfront. If you want your loan to be serviced by the financial institution that originated it, you might consider working with a credit union over a bank.
Credit unions vs. banks: Which is better for a mortgage?
David A. Krebs, the principal broker at DAK Mortgage in Miami, believes that both credit unions and banks have their place, and choosing one or the other for your mortgage is a matter of personal preference.
“Choosing between a credit union and a bank often comes down to personal preference and individual financial situations,” said Krebs. “Credit unions tend to offer lower rates and fees due to their not-for-profit model, but banks often have more diverse product offerings and technological conveniences. It's essential to shop around, compare rates, fees and terms and consider factors like customer service and accessibility.”
If you value lower fees, personalized service and are comfortable with limited branch access, a credit union might be the better choice. However, if you prioritize convenience, technology and a wide range of mortgage products, a bank may be more suitable. Ultimately, the best lender is the one that aligns with your financial goals and offers the most favorable terms. Consider getting preapproval from both types of lenders to compare offers side by side before making a decision.
FAQ
Is it easier to get a mortgage with your own bank/credit union?
While it might feel easier to simply get a mortgage with your own bank or credit union, it might not actually be any easier. You still need to submit a complete application with your personal and financial information, and most banks won’t just auto-populate your information into a mortgage application. While you can ask your local bank for discounts or other incentives, it’s best to shop around to find the best rates and terms.
Are big banks safer than credit unions?
Both big banks and credit unions are protected by the federal government (the Federal Deposit Insurance Corporation for banks and the National Credit Union Administration for credit unions), so neither one is necessarily “safer” than the other. Even if a bank or credit union fails, there are processes in place to give depositors access to their funds within days, and existing loans will be passed onto another financial institution.
Do both banks and credit unions offer nonconforming loans?
Yes, both banks and credit unions can offer nonconforming loans, such as jumbo loans. Banks typically have more offerings than credit unions, but it’s best to check with both to find a loan that works with your specific financial situation.
Do credit unions offer home equity loans?
Yes, credit unions can offer home equity loans. A home equity loan allows you to borrow against the equity in your home to be used for home improvements or other purposes. Credit unions usually offer lower interest rates than banks for home equity loans and home equity lines of credit (HELOCs).
Should first-time homebuyers consider credit unions?
Yes, first-time homebuyers should consider credit unions because of their lower rates, reduced fees and personalized service. Credit unions often take extra time to help new buyers understand the mortgage process and may be more flexible with approval requirements, which can make the experience less intimidating and more supportive.
Do credit unions have better mortgage rates than banks?
In many cases, credit unions do offer better mortgage rates than banks. Because they are not-for-profit institutions, they pass earnings back to members through lower interest rates and fees. However, it’s still important to shop around and compare offers, as rates can vary based on the institution, loan type, and borrower qualifications.
Bottom line
Both credit unions and banks offer a variety of mortgage types for homebuyers and those looking to refinance their mortgage. Banks typically have more offerings available, while credit unions will usually have lower interest rates and fees.
No matter which lender you choose, it’s important to compare multiple offers to find one that best fits your financial situation and saves you money.
