Buying or building a home is traditionally the largest purchase you will make in your lifetime. So whether you choose a Credit Union or a Bank to finance, your decision will have a lasting effect for the life of your mortgage loan. Getting pre-approved for home financing is the first step in building or buying a new home because it will let you and sellers know how much you are able to spend. Here are a few of the pros and cons of a Credit Union and a Bank for financing your home loan.
Credit Union Mortgage
Credit Unions offer a variety of financial services similar to banks such as checking and savings and financial services. However, credit unions are member-owned cooperatives focused on the benefit to their members and community. One of the differences from banks is that credit unions do not pay federal taxes, allowing them to focus on a break-even business model that stresses customer service. Here are some pros and cons to consider when selecting a credit union to finance your home.
- A Personal Touch. Because Credit Unions are member-owned organizations, they tend to focus on customer service above profits. Each time you go in, you will most likely deal with the same people who know your finances and your loan.
- Incentives. Credit Unions often hold on to your mortgage for the life of the loan, as opposed to selling it to another lender, so they also offer incentives to originate your mortgage with them, particularly for first time home buyers. These incentives may include a no-down-payment mortgage plan or various pay for success incentives such as cashback or waiving certain fees for every year you stay up to date on your loan. While the cashback may not be astronomical, it is helpful. And waiving fees may not seem like much, but waiving closing fees can keep thousands of dollars in your pocket.
- Fewer Unnecessary Fees. We have all experienced the frustration of finding added service and processing fees for a bill. Because Credit Unions are less concerned with making a profit, there tend to be fewer fees to worry about, like origination of the loan fees. Fewer fees can mean really big savings over time.
- Lower Interest Rates. Credit Unions are known for having lower interest rates for all of their loan products. However, find out if they tend to sell their mortgages. If so, their rates may be similar to the banks to incentivize the sale. While lower interest rates may not seem to make a difference, they can save you thousands of dollars broken up over the life of your loan.
- Easier Approval Process. Because most credit unions hold onto your loan, they can be more flexible with who they lend to, and the terms of the loan itself. People with lower credit scores and smaller down payments might be approved, where they would not at a bank. If you have been a member of the Credit Union for a time, they may even consider your account activity, which can help give a larger picture of your financial responsibility.
- Develop A Relationship. One of the benefits of developing a relationship with any organization, particularly a credit union, is that it makes it easier down the road to access other financial services, including refinancing options.
- Insurance. Credit unions are not insured by the Federal Depository Insurance Corporation (FDIC), a government agency that insures depositors for up to $250,000 dollars. Instead, some credit unions offer private insurance or are insured by state-chartered companies that are not considered as secure as federal insurance. However, most credit unions are backed by the National Credit Union Administration (NCUA) which is a federally chartered organization and reliable.
- Fewer Financing Choices. Smaller credit unions may offer fewer financing products. Financial institutions offer loans based on the amount of money they have, that comes from members and profits. Credit unions have less of both than a bank, so they offer fewer loans overall.
- Limited Mobile Banking. Because they are a customer service-centric organization, their technology may be more dated. If mobile banking is a must for you, you might shop for credit unions with higher technical capabilities.
- Fewer Locations. Credit Unions often do not offer the extensive branch and ATM network that banks offer. Which may make face-to-face servicing difficult should you travel a great deal.
- Membership Eligibility. Credit Unions require membership to originate a loan. To obtain a membership, you must meet certain requirements. One such requirement is that you be a part of the unifying group the union caters to such as veterans or labor unions. There is often a credit union for residents in a particular community. Family members of current credit union members are usually eligible for membership as well.
Banks are financial institutions that offer deposit accounts and lending services to the public. They are for-profit organizations that are owned by shareholders and stress profits. They are insured by the FDIC and have a large number of financial offerings including credit cards, car loans, and of course mortgage loans.
- Financing Options. Banks have more members and profit, allowing a larger number of lending services. This can help down the road should you need to refinance a loan.
- No Membership Requirements. Banks serve the general public and you do not have to have an account with the bank to originate a loan, though it can help.
- More Branch and ATM Networks. Banks are traditionally larger than credit unions and have a number of branches and ATMs within their network. This can be a benefit if you travel often or need to service your account.
- Insurance. Banks are federally insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000. This means that borrowers can be assured of the safety of their money.
- Updated Technology. Mobile banking is generally more advanced with banks. The technology allows you to service your account or view the terms of your loan online instead of in person.
- Incentives. Banks tend to offer larger incentives for holding your mortgage loan and the success of your on-time payments. These incentives can include discounts, waiving fees, and cashback.
- Less Face-to-Face. The large network a bank offers also limits the amount of personalization offered for customers. You may not deal with the same person each time you come in to service a loan.
- More Fees. Banks are for-profit organizations, meaning more service fees that can add a great deal of money to your loan. Fees can include both origination and closure, service, and other fees.
- Higher Interest Rates. Banks maintain higher interest rates for your loans which can translate to thousands of dollars out of your pocket.
- Stricter Loan Process. Banks have a higher standard for loan applicants. Credit scores, debt-to-income ratio, and account history all play a part in determining your qualification for a loan, just like a credit union. But unlike a credit union, banks have less wiggle room on the terms of the loan.
Buying a home is one of the largest purchases you will make in your life, so it is very important you consider the terms of your mortgage loan. A bank or credit union will determine the terms of your mortgage loan. Developing a relationship with a financial institution, by opening an account before you are ready for a mortgage, can help come time to negotiate the terms of your loan. Whether you choose a bank or a credit union, getting preapproved for a loan is the first step in every home buyer’s journey. Let a Blue Realty agent help you in every step of the process.