Credit Union vs. Bank Mortgage

Understanding mortgage lending institutions is vital in making sure you don’t miss out on the best deal possible. Credit unions and banks each have their own pluses and minuses, and once you know the differences, you’ll be able to make the decision that’s best for you.  

What's the Difference Between Credit Unions and Banks?

Credit unions are nonprofit organizations and are member-owned. They are much smaller and they tend to prioritize customer service.

Banks are for-profit, which also means they have a lot of capital to invest in technology and offer more conveniences. They both offer similar financial services and process millions of mortgages each month.

Mobile banking is the standard, but solutions like Chase’s QuickDeposit takes phone finances to a new level. Technology like this has translated into the mortgage space, which makes it easier for the consumer to stay on top of a mortgage in process. Bank branches also outnumber credit union branches. The convenience, speed and capital that banks have is something few credit unions can contend with.

There are definite differences when it comes to credit unions and banks, but a small bank can behave like a credit union. Small banks have less red tape than their bigger brothers, and the line that separates them and credit unions can be murky. If you don’t have an account, make sure you know how to open a bank account.  

Should You Use a Credit Union or Bank for Your Mortgage?

Looking at your lender options is vital to knowing where the best deal is. Banks and credit unions both handle interest rates, fees and qualifying factors in their own way. When you look at each of these, the best institution for your financial situation may become apparent.    

All mortgages are not created equal. It is important to consider if a bank or credit union will be easier on your wallet, and be sure to shop around. Even when you decide which type of financial institution you want to go with, costs still vary.

The Federal Trade Commission recommends taking this checklist to each institution as you shop around to make comparing deals easy.    

Interest Rates

An often-talked about mortgage topic includes rates, especially as mortgage rates move higher. A bank is more likely to have higher rates because they are likely to sell your mortgage on the secondary market. When a mortgage lender sells on the secondary market, they are beholden to the rates set by Fannie Mae and Freddie Mac, the government-sponsored enterprises that purchase mortgage debt from lenders. Because credit unions often don’t sell their mortgages, you can expect them to offer lower interest rates.  

Credit unions are known for holding onto their debt and servicing their mortgages themselves.

Fees

There are many fees in the mortgage process. Fees and points should always be up for negotiation, no matter where you get your loan.

Banks, which are for-profit organizations, seek to maximize profits and often have marginally higher fees for closing costs and origination fees.

Credit unions, on the other hand, charge no more than necessary for the same functions, as they do not seek to make a profit off their members.

Approval Based on Income

Since credit unions are member-focused, they’re often more forgiving with approval based on income. You’ll need to show your pay stubs, bank statements and tax returns to prove your gross income, which is then measured against your monthly debt. If your debt-to-income (DTI) ratio is within the allotted percent, you’re likely to be approved for the loan. DTI is a comparison of your monthly debt payments compared to your monthly income. The calculation is simple: It’s total monthly debt divided by total monthly income.

Many credit unions are created for and founded by people in a certain industry. Teachers are a well-known example, and with that comes the knowledge of how members’ income works. Banks rarely dig in so deep when looking at the income of their applicants and focus strictly on the numbers and hard data applicants present.

Approval Based on Credit Score

Credit score is another area where credit unions are more forgiving. Your credit score is a number between 300 - 850 that gives lenders a way to determine your creditworthiness. It also gives a financial institution a simple way to gauge your borrowing and repayment history. From this, they can assume how probable it is that you’ll pay off your debt.

Members who have held an account for years and managed to keep their balance in the positive may get approval despite a low score and history of poor debt management. These are extenuating circumstances, but not unheard of. Banks, as you may have guessed, can’t bend their rules so easily.

The Financial Institution for You

There is a mortgage lender for you no matter what your needs are. Understanding those needs is critical. Credit unions are the clear winner in many of our categories, but there will be instances when a bank is better.

Knowing where your priorities are and what you’re working with is the first step to snagging the keys to your dream home.  

Frequently Asked Questions