Credit Union vs. Bank Mortgage: How to Choose

Purchasing a new home can be an exciting time. Whether it’s your first home purchase or you’ve purchased several homes in the past, there are many decisions to make along the way. One of the most important choices you’ll make is which lender to use for your home mortgage.

Traditional banks are the most popular choice among homebuyers. However, this isn’t the only option. Credit unions are also becoming an increasingly popular option for homebuyers. In fact, in 2022, credit unions funded 1.3 million home mortgage loans.

Before you select a lender for your home mortgage, it’s important to understand the benefits and drawbacks of credit union mortgages. This understanding can help you decide which option is right for you.

This guide provides a credit union vs. bank mortgage comparison to help you determine which home loan option might best meet your needs.

Advantages of a Credit Union Mortgage

The major difference between banks and credit unions is that banks are for-profit entities and credit unions are nonprofits. Additionally, credit unions require membership, whereas banks are open to anyone. These special features allow credit unions to offer several unique benefits. Here’s a look at the top four advantages of a credit union vs. bank mortgage.

Easier Approval

In general, credit unions offer an easier approval process than traditional banks. In 2022, credit unions approved 61.23% of home mortgage applications. Credit unions are also more likely to lend to those with less-than-stellar credit and require smaller down payments.

Additionally, credit unions are more likely to hold onto the mortgages they originate rather than sell them like other financial institutions sometimes do. While the terms of the mortgage should remain the same even after being sold, it can be stressful watching your mortgage change lenders multiple times. With a credit union mortgage, your loan will likely remain with the financial institution throughout the term of your home mortgage. The practice of selling mortgages can also drive up interest rates and underwriting standards.

Lower Rates

Both banks and credit unions typically offer fixed-rate and variable-rate mortgage options. However, since credit unions are nonprofit organizations rather than for-profit businesses, they’re often more concerned with serving their customers than making a profit. Typically, this allows credit unions to offer better interest rates. 

Overall, credit union rates tend to be lower for all loan types, including credit cards. Even a small difference in interest rates can make a big difference over the life of a mortgage, though, so any little bit helps.

Fewer Fees

When you buy a home, you’ll face several unavoidable fees, including closing costs, appraisal fees, and insurance. However, banks and credit unions do control the costs for some mortgage-related fees, such as processing costs and origination fees. As nonprofits, credit unions often pass savings on to their members.

One way many credit unions do this is by offering lower process and origination fees. These lower fees can help make the home-purchasing process more affordable.

More Personalization

While banks tend to prioritize profits, many credit unions typically put their customers first. This means you’re likely to receive a more personalized experience by working with your local credit union. They also often offer special rewards programs and incentives for first-time homebuyers or no-down-payment plans.

Depending on your credit union, it may also be better able to provide specific advice and context for loans. For example, credit unions specifically for veterans may have more hands-on expertise with VA loans.

Disadvantages Of A Credit Union Mortgage

While there are many advantages of a credit union mortgage you should consider, there are also a few drawbacks. Below are four things to keep in mind if you’re considering a credit union vs. bank mortgage.

Membership Requirements

As mentioned above, you must be or become a member of the credit union before securing a home mortgage. Some credit unions have very broad requirements that can make membership easy. On the other hand, some credit unions have very stringent membership requirements in place. For example, a VA credit union may require all members to be former members of the United States Armed Forces or an eligible dependent.

You can find credit unions in your area that you may qualify for by using a credit union locator.

Limited Branch Access

Credit unions tend to be smaller than many national banks. This means you may not have access to as many banking locations as you would if you worked with a larger bank. In fact, the average credit union has only four branch offices. However, many of them still offer online services just like traditional banks.

Outdated Technology

While credit unions are making leaps and bounds when it comes to upgrading their technology, many still aren’t up to speed with larger banks. For instance, smaller credit unions may have limited online services. In fact, some smaller credit unions don’t even have a dedicated app to make online banking quick and easy.

Insured Through NCUA

Credit unions aren’t covered by FDIC protection. Instead, these financial institutions fall under NCUA, which regulates credit unions and may offer similar insurance protection. However, some smaller credit unions may be state charters and have insurance through a state agency or private company. While even this offers similar insurance protection, many believe it’s not as secure. You can use the NCUA Credit Union Locator to find federally chartered credit unions.  

Credit Union vs. Bank Mortgage

When looking for a home mortgage lender, the most important thing is to take your time and shop around. Compare interest rates and fees between credit unions, banks, and other mortgage lenders to find the best deal for you. Be sure to always read the small print to find out exactly what fees and costs are associated with your mortgage.

If you can’t find a lender offering the interest rates you want, working to improve your credit score can help. Start by checking your free credit score to see how your credit compares with other consumers’. If your score is lower than you think it should be, you can use Credit.com’s Free Credit Report Card to see what areas of your credit report you need to start working on.