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Credit Union vs Bank: Which Mortgage is Better

Posted by Finex CU on Jul 7, 2022 10:26:00 AM
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Topics: mortgage, first time home buyer, custom mortgage solutions, home loan

The decision to apply for a mortgage often leaves community members wondering whether a credit union or a bank is the best lending resource for them. People ask themselves: credit union vs bank, where should I go? The answer to this question can be discovered with more of an understanding between their differences and similarities.

These financial institutions offer overlapping opportunities, and the money you save in both is secured by federally-guaranteed insurance. Both types of lenders generally provide convenient hours and ATMs along with an online presence allowing for convenient online mortgage applications. Although the playing field may feel balanced in the credit union vs bank arena, there are differences that may sway potential home buyers in one direction or the other. If you are considering purchasing a home, reviewing these differences is worth your time and consideration.


Credit Union vs Bank: Is There a Difference?

If you were to compare the physical layout of a credit union vs bank, they may look quite similar. The branch layout may have slight differences, but both typically offer tellers to assist customers, and lending professionals to process mortgages, personal loans, and other financial opportunities. ATMs are typically available as well as online loan applications.

But an underlying fact about the organizations creates a significant difference. Banks are generally privately-owned corporations designed to provide stakeholders with a substantial return on their investment. These for-profit organizations make ownership a lucrative proposition. The dividend money wealthy shareholders receive is driven by charging higher interest and wide-reaching fees.

Even seemingly free checking accounts at banks may involve stipulations requiring customers to maintain a minimum balance, incur a fee, or have transaction limitations. Accounting errors such as an overdraft or bounced check typically result in a hefty penalty.

By contrast, credit unions are not-for-profit organizations with a mission to provide opportunities to everyday neighbors and our underserved communities. Credit unions are owned by the membership. The $5 minimum balance requirement for your savings account is your membership share of the credit union. As a member, you can attend the credit union’s Annual Meeting where credit union updates are shared, and members are able to vote on items pertaining to the future of the credit union and its board of directors. As a member, you have a vote.

The credit union goal of serving community members’ financial needs often results in mortgage products with competitive interest rates, reduced processing fees, and the knowledge that the credit union experts helping you are doing just that. They are there to help you find the product that best fits your budget and situation, versus selling a product to hit a sales goal. One possible challenge associated with credit unions involves what is known as a “field of membership.” Credit unions may be limited to a specific member base. Examples range from being limited to a geographical community, membership in another organization, and a defined occupation, such as teaching. Be sure to check with your local credit union to review the membership guidelines.



Credit Union vs Bank: What Mortgage Options Are Available

The credit union vs bank mortgage lending programs may appear similar on the surface. Both financial institutions facilitate government-backed mortgage products as well as privately secured options. Qualified borrowers can anticipate the following home loan options at banks and credit unions.

  • Conventional Loans: These private-supported mortgage products may be good choices for home buyers with solid credit scores and cash on hand. A Conventional Loan can be cost-effective for people with a 5 percent down payment and secure debt-to-income ratios. These are typically available in both fixed and adjustable-rate mortgages.

  • FHA Loans: The Federal Housing Administration (FHA) insures mortgages for people who may not necessarily possess perfect credit scores or 20 percent down payments. Community members may qualify for an FHA Loan with credit scores of 580 or lower and significantly lower cash down payments.

  • First Time Home Buyer Programs: Some financial institutions offer First Time Home Buyer Programs helping new home buyers by offering more flexible terms and down payment requirements.

When shopping for a home loan, the difference between a fixed-rate and adjustable-rate mortgage (ARM) is important. Fixed-rate mortgages establish a monthly payment that does not change over the life of the loan. By contrast, an ARM may shift higher or lower depending on interest rate benchmarks. It’s essential to discuss the best mortgage option for your needs with a lending professional.



Mortgage Rates & Fees

When working through mortgage rate and fee structures, it’s important to understand that neither a bank nor credit union can offer a zero-interest mortgage or waive all the fees. Banks do have to provide their shareholders with a return on their investment, while credit unions reinvest any returns into their local branch facilities, new product offerings, local staff for shorter lines and application process times, updated online platforms, and a pool of funds to offer more community members affordable lending opportunities. Choosing to work with a credit union like Finex Credit Union is akin to reinvesting in yourself and the community.

As you compare mortgage programs and mortgage interest rates, be sure to compare mortgage fees associated with applying for a mortgage such as the origination fee, documentation preparation fee, appraisal fee, credit report fee, title fees, and other closing costs. Those factors in the credit union vs bank decision can add up fast.


To discover your maximum house-hunting budget, download our free guide:How Much House Can I Afford in Connecticut?


Local Mortgage Decision Making

As you get ready to buy your new home, the mortgage process experience may be a large point to consider when deciding between a credit union vs bank. First time home buyers and people refinancing often have wide-reaching questions about home loan products, how to qualify, how to get pre-approved, and the community at large.

Credit union representatives are members of the community first and foremost. As such, staff members enjoy professional relationships with real estate agents, school officials, and non-profit organizations. Having assistance navigating your questions and receiving knowledgeable answers that apply directly to you and your local community offer a feeling of comfort that is always priceless.



Applying for a Mortgage at a Credit Union Means You Are Supporting Your Local Neighbors

As a financial cooperative, Finex Credit Union helps working families achieve their dream of owning a home by offering affordable mortgage options. We reinvest the modest interest rates and fees into strengthening our ability to better serve our membership, not to pay wealthy shareholders living in other states. We reinvest in the local Connecticut communities we serve and call home. If you are considering buying a home, get pre-approved for your mortgage with Finex Credit Union today.

Credit union vs bank is one of the many questions to consider when searching for an affordable mortgage and home. For more home buying tips, download our "How Much House Can I Afford in Connecticut?" guide.

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