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Credit Union vs. Bank Mortgage Home Financing: Which Is Better?

TLDR

What You Need To Know

  • Credit unions are nonprofit financial institutions owned by their members; banks are for-profit financial institutions owned by shareholders
  • In general, credit unions are more likely to lend to buyers with lower credit scores and offer lower down payment options
  • Banks usually have more brick-and-mortar locations – which makes branch locations easier to find

Contents

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You’ve made a lot of progress in the home buying process. You’ve started saving money for a down payment, spent time house hunting and found your dream home.

Now you’re ready to move ahead with a mortgage lender. And you’ve come to the point where you need to make the all-important “credit union vs. bank mortgage” decision.

We can help walk you through your decision and point out what you’ll need to consider when you’re deciding to go with a credit union or bank.

What Are the Differences Between Credit Unions and Banks?

Traditional banks and credit unions are financial institutions that offer very similar services, but there are some important differences – especially when it comes to mortgages. Let’s look at how these two financial institutions differ.

Who owns them

One of the main distinctions between banks and credit unions is who owns them. Credit unions are nonprofit financial institutions owned by their members. Banks are for-profit financial institutions owned by shareholders.

Because credit unions don’t have investors to report to, they typically pass their profits on to their members, offering lower service fees and lower interest rates on loans. Some credit unions offer dividends to their members.

Who can join

Just about anyone can open an account with a bank. But credit unions are different. With a credit union, you have to qualify to become a member.

Credit union members normally share a common characteristic. A credit union might require that you live in a certain community, work for a particular employer or belong to a faith organization in a specific city or region. Many credit unions also extend membership to their members’ immediate families.

Who insures them

The National Credit Union Administration (NCUA) insures customer deposits for credit unions. And the Federal Deposit Insurance Corporation (FDIC) insures customer deposits for banks.

The NCUA and FDIC insure checking, savings and money market accounts up to $250,000 per person per account. Other deposit accounts, like mutual funds, stocks and bonds, are not typically insured by the NCUA or FDIC.

Not all credit unions are federally insured. Some are state-chartered credit unions. You can confirm if a credit union is insured by the NCUA through the Credit Union Locator.

Not all banks are federally insured either. Some banks are state-run and insured by the state. To verify that a bank is FDIC insured, look it up on the FDIC’s BankFind Suite tool.

Interest rates

Credit unions can usually offer lower mortgage rates than banks because they are nonprofit institutions that pass their profits on to members. They also generally offer higher interest rates on deposit accounts, like savings accounts.

Fees

Because credit unions pass their profits on to their members, they can offer low or no fees on their services. Because banks must generate income for their investors, banks tend to charge higher fees.

Technology

Large banks that spend more on technology can be quicker to adopt new technical services. You might notice these differences when it comes to web-based platforms or mobile banking apps, but many credit unions have up-to-date technology.

What Are the Pros and Cons of Financing a Mortgage With a Credit Union?

Many consumers think banks and credit unions are interchangeable. But, in reality, that’s not the case. There are advantages and disadvantages that come with either choice – especially during the home buying process.

Our list of credit union mortgage pros and cons will help you determine which type of lender is right for you and your home loan.

Pros of getting a credit union mortgage

Let’s look at the positives first. The key benefits to getting a mortgage through credit unions are:

  • It can be easier to get a loan: Credit unions can be more flexible with mortgage loans, so the chances of getting a loan approved are higher. In general, credit unions are more likely to lend to buyers with lower credit scores and offer lower down payment options.
  • Lower rates and fees: Because credit unions are nonprofit financial institutions, they typically offer lower fees and mortgage interest rates than banks.
  • Personal service: Credit unions are known for offering personalized, face-to-face customer service. When you have a problem or a request, you’re less likely to have to go through “red tape” with a credit union.

Cons of getting a credit union mortgage

Of course, credit unions aren’t perfect. Some drawbacks come with choosing a credit union as your mortgage lender:

  • Membership required: Most credit unions require membership before you can apply for a mortgage loan. If you don’t qualify for membership, you likely cannot use the credit union’s services. And membership usually comes with a fee. It’s normally a minimum $5 – $25 deposit into a savings account.
  • Fewer locations: A credit union might operate in a small area, like a town, city or region. It may not be easy to find a brick-and-mortar location when you need one.
  • Limited technology: Some credit unions are smaller institutions that don’t have the money to invest in tech the way large banks do. Customers might feel like their credit union’s online or mobile banking technology is outdated.

What Are the Pros and Cons of Financing a Mortgage With a Bank?

Now let’s turn our focus to banks. Our list of benefits and drawbacks will help you decide whether a bank might be a better mortgage financing option for you.

Pros of getting a bank mortgage

The benefits of using a bank for your mortgage are:

  • More branch locations: Banks tend to have more brick-and-mortar locations – which makes branch locations easier to find.
  • Better technology: Large banks can generally invest a lot of money in online banking platforms and apps. You can easily access your account when you’re traveling. And you can get to the root of any problems without having to call or visit a branch.

Cons of bank mortgages

Some of the downfalls of choosing a bank for your mortgage lender are:

  • Customer service: A large bank may not provide the same level of customer service and attention you’d find at a local credit union.
  • Higher rates and fees: Banks tend to charge higher interest rates and have more fees.
  • Harder to qualify: Banks can be more stringent about loan approvals. That makes it harder for home buyers with lower credit scores or smaller down payments to qualify for a mortgage.

Consider the Long-Term Relationship

When you’re thinking about who you want to get your mortgage from, another factor to consider is the importance of your relationship with the financial institution. Sometimes it just makes sense to get your mortgage from the institution where you’ve built up trust as a customer.

Do you want your mortgage to stay with your original lender? It’s common practice for banks to sell their mortgages to third-party lenders or servicers. It’s less likely that a credit union will sell their loans. If you’d prefer to keep the same lender for the life of the loan, this might be something to consider.

Are Credit Unions Safer Than Banks?

The short answer is no. They are just as safe as banks. At most credit unions and banks, customer deposits are federally insured and the coverage is pretty much identical.

Time To Decide Which Option Is Right for You

Deciding to apply for a mortgage with a credit union or bank is a personal choice. Make your choice an informed one by making a list of your top priorities and seeing which lender option checks off the most boxes. 

If you value the convenience of easy online banking and easy-to-access branch locations, a bank might make the most sense for you. If you meet the membership requirement for a credit union and your primary focus is getting the lowest mortgage rate possible and personalized customer service, a credit union might be a better choice.

ICYMI

In Case You Missed It

  1. Credit unions are known for personalized customer service. That’s why credit unions generally have higher customer satisfaction rates

  2. Credit unions tend to operate in smaller geographic areas. Finding a branch location can be more challenging compared to large national banks

  3. Large banks can generally invest a lot of money in technology, like online banking platforms and apps

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