Credit Union Vs. Bank Mortgage: Which Is Right For You?

You have several options when shopping for a mortgage loan, including a credit union or bank mortgage. Both provide loans and offer attractive financial services but have several advantages and disadvantages you’ll want to consider.

Keep reading to learn how to decide which type of mortgage lender is right for you.

How Are Credit Union And Bank Mortgages Similar?

You’ll find many similarities between a credit union and a bank when it comes to mortgages.

For starters, you use the same process to apply. You complete a loan application and provide your qualifying documentation such as pay stubs, W-2s and tax returns. Then, an underwriter reviews your qualifications and decides if you’re a good fit.

At both banks and credit unions, you’ll likely find fixed-rate and adjustable-rate mortgages. You’ll also likely find several loan programs with varying requirements, such as different down payments, debt-to-income ratios and even credit scores.

Most banks and credit unions offer several financial products for home purchases, improvements and refinances, including home equity loans and lines of credit.

Key Differences Between Getting A Mortgage Through A Credit Union Vs. A Bank

When considering credit union versus bank mortgage loans, you should evaluate the differences, too, starting with their structure.

Banks are for-profit, which generally (but not always) means higher rates and fees. Credit unions are nonprofit, which may provide lower rates and fees. While anyone can use a bank, you must be a member to use a credit union, though not everyone is eligible. For example, you may need to be a resident of a particular state, alumni of a university, or current or former employee of a particular organization. Other credit unions require membership in a particular group, such as a school or labor union, for example.

Other ways banks and credit unions differ in the mortgage process include:

• Credit unions often hold onto the mortgages they write while banks sell most mortgages they write. If and when sold, your mortgage rate and loan terms should stay the same, regardless of the mortgage service provider.  
• Credit unions may have fewer loan programs than large national banks with government loan options.

Credit unions often require you to have other accounts (like checking accounts or savings accounts) at that institution before taking out a mortgage, and banks typically don’t.

What Are The Advantages Of Choosing A Credit Union Mortgage?

Although credit unions are structured differently than banks, there are benefits to securing a mortgage through a credit union. Here are some to consider.

Lower Fees And Interest Rates

Because credit unions are nonprofit, you may be able to secure a mortgage with lower interest rates and closing costs. Credit unions don’t have investors to pay or even taxes to cover. They can pass on the savings to their members by providing lower interest rates and fees.

Easier Credit Approval

Credit unions look at the big picture versus focusing only on your credit score. Many bank loans require a minimum credit score, and if you don’t meet it, they won’t move forward with your application.

On the other hand, credit unions look at your income, assets, employment, employment potential and overall ability to afford the loan. They aren’t held to strict credit score standards so they can be more flexible with their guidelines.

Friendly Customer Service

Since profits aren’t the credit union’s top priority, they tend to focus more on their members and provide top-notch customer service. Also, since you must be a credit union member to get a mortgage there, the staff is more likely to know you since they have a smaller customer base than a large bank might.

What Are The Disadvantages Of Choosing A Credit Union Mortgage?

Credit unions have many benefits, but like anything, there are some drawbacks too. Here are the downsides of getting a mortgage from a credit union to consider.

Membership Qualifications

You must belong to a credit union, which means you must meet their membership requirements. Credit union members have something in common, whether they work for the same company, live in the same community or belong to the same organization.

You can’t join a credit union unless you, a spouse or family member meet the membership requirements. For example, if you want to join a federal credit union, you’ll need to hold a job at a government agency or have a family member that does. Otherwise, you won’t be allowed to open an account.

Limited ATM Access

Many credit unions have only a few ATMs since most lack nationwide branches and are confined to a specific geographic area. Some credit unions don’t belong to an ATM network either, which means you can’t get in-network rates even when away from home.

Similarly, if you take out a home equity line of credit (HELOC) and want to draw out funds, you can only do so at your local credit union.

Outdated Technology

Credit unions are often behind in technology use compared to banks that have more funds to build mobile apps and tools. Therefore, before you take out a mortgage at a credit union, find out if you can apply and make your payments online. Many credit unions don’t offer this option, unlike banks that offer a wide variety of services through their websites. Regardless of where or how you make payments however, you can use Rocket Money to track expenses made across your accounts, by check, cash, credit card, or ACH transfer.

What Are The Benefits Of Choosing A Bank Mortgage?

If you’re considering a bank mortgage, keep these benefits in mind.

Variety Of Services

Banks usually offer more types of loans than credit unions and often work with government loan programs to give you more affordable options, such as an FHA or USDA loan.

Commercial banks can also offer financing for real estate businesses, like blanket loans, which can be used to buy multiple properties in one transaction. In other words, if you’re considering taking out a mortgage to purchase an investment property, a bank might be the better financial institution to use compared to a credit union.

Multiple Branches And ATMs

When you take out a mortgage at a large traditional bank, you can go to just about any branch and ask questions, view your balance or talk about refinancing options. For instance, if you have a HELOC, you can access your funds at any branch without paying fees.

New Technology

Since banks are for-profit institutions, they often have better technology. You may even be able to apply, process and close your loan online without talking to a loan officer (though of course, if you have questions, you should reach out to customer support). Most banks also offer the option to pay your mortgage online, saving you time and the hassle of mailing in a check.

If you’re someone who wants to use mobile banking services, a credit union might not be the right choice for you.

What Are The Drawbacks Of Choosing A Bank Mortgage?

Like credit unions, there are drawbacks to choosing a bank mortgage too. Consider these downsides when looking at traditional or online banks.

Higher Interest Rates

Since banks are for-profit, they usually charge higher interest rates than credit unions. For example, if taking out a mortgage, you’ll usually end up paying more for your home loan over time than if you’d used a credit union mortgage. Keep in mind while your down payment may be the same, your interest rate can impact the cost you pay for your home over the length of the mortgage.

Higher Fees

Again, because banks are for-profit, they likely charge fees to process your loan. You may pay fees for origination, processing and closing, which helps banks cover the costs associated with your loan.

Less Personalized Customer Service

Working with a large bank, you may not get the same level of customer service you’d receive at a credit union simply because banks have a more extensive customer base.

Credit Union Mortgages Vs. Bank Mortgages: Other FAQs

Many borrowers have questions regarding credit union versus bank mortgage opportunities. Here are the most commonly asked questions and their answers.

Is my money safer in a credit union or bank?

Your money is equally safe in a credit union or bank. Different agencies regulate them, but both offer the same protection. Banks are regulated and insured by the FDIC, and credit unions are regulated by the National Credit Union Administration.

Which institution is more likely to sell my loan?

Banks are more likely to sell your loan than credit unions. Most credit unions offer their own loan programs and keep the loans on their books. Banks sell most loans because they want to increase their liquidity and grow their opportunity to write more loans.

Can I take out a HELOC or home equity loan through a credit union?

Many credit unions offer a HELOC or second mortgage, just like you’d find at your regular bank. Before taking out either, make sure you understand how they work. Keep in mind:

• A HELOC is a line of credit you borrow against your home’s equity. You can draw from the balance you need (similar to a credit card) and make interest-only payments before the repayment period begins, but you will ultimately be responsible for paying that money back.
• A second mortgage home equity loan provides access to your home’s equity in one lump sum. You make principal and interest payments right away and don’t have a line to draw on. Although, your interest rate is fixed, whereas a HELOC has a variable interest rate that can change monthly.

The Bottom Line: Should I Take Out A Credit Union Or Bank Mortgage?

Before taking out a mortgage with a credit union or bank, weigh the pros and cons and evaluate which best fits your needs to decide which option is right for you. When you’re ready, fill out an online application to get started with the approval process and to learn more about what mortgage rates you could qualify for.