Don’t Sleep on Credit Unions for Your Mortgage
In 2021, buying a house was like going to war. In 2022, it’s hell. Although last year’s frenzy, when a pandemic sales boom combined with record low mortgage rates led to price spikes and cutthroat buyer competition , has eased somewhat, inventories are still historically low and prices are still elevated (although in some markets they are down a bit ). ). To the buyer, this sounds like good news, except that the reason the market is cooling down also sucks: interest rates are rising at an almost unprecedented rate . Now more than ever, getting a good rate can mean the difference between owning a house and living in an apartment for another year.
Most people go to their bank for a mortgage by default because that’s the easiest choice and banks will be happy to lend you money and they have a whole staff of people busy figuring out how to give it to you. But that doesn’t mean they are the best option. Your lender is going to make a lot of money off of you, so you should treat getting a mortgage like buying a car and keep an eye on it. And if you’re buying a mortgage, you definitely shouldn’t sleep in credit unions.
What is a credit union?
A credit union is a financial cooperative owned by its members. There are very large credit unions owned and operated by thousands of people or even corporations, and there are much smaller credit unions run by an organization or group of individuals. Credit unions typically offer many of the same services as banks, including savings and checking accounts, cards and ATM locations, auto loans… and mortgages.
People sometimes overlook the fact that most banks are commercial entities, which means it’s in their best interest to make sure your mortgage brings them money. A credit union, on the other hand, is a nonprofit financial cooperative that returns profits to its members through (generally) higher savings interest rates and lower fee structures. This means that a credit union may be the best option for any financial need, including mortgages, because they care more about your transaction not losing their money, which is a fundamental difference.
Benefits of a credit union mortgage
There are many good reasons to consider a credit union for your home loan:
- Simplified statements. Because credit unions are focused on meeting the needs of their members rather than making a profit, it may be easier for you to get mortgage approval at one rather than at a bank. This is especially true for people who do not have a long credit history, or whose credit history is not perfect. But note that this varies by credit union – some will have a lower risk tolerance.
- The best rates. Typically, credit unions offer lower mortgage rates . Sometimes the difference can reach several percentage points. This is not a guarantee – you should shop around anyway, and a traditional retail bank might offer a better deal. But overall, you can probably save some or a lot of money through a credit union.
- Fewer fees. Credit unions are set up to serve the interests of their members and don’t try to take every last bit of profit from you, so they tend to have lower fees and commissions.
- Faster closing. Anyone who has received a mortgage through a bank knows that to say that the process is moving on ice is a gross understatement. People selling a home love to hear about a quick close because they’re less likely to pay an extra month on their own mortgage if they can avoid it. Credit unions tend to move much faster, partly because they are smaller and more flexible organizations, and partly because of their member-centered philosophy.
- More friendly service. Banks can sometimes act like you are trying to steal from them when you apply for a loan. Credit unions are smaller and more individual because they are jointly owned, which often results in a more pleasant mortgage experience.
Cons of Credit Union Mortgages
There are many positives in terms of using a credit union for a mortgage, but that doesn’t mean they are always the right choice. There are some disadvantages:
- Membership requirements. Unlike a retail bank where almost anyone can apply for a mortgage, in a credit union you must be a member. And most credit unions have requirements that you must meet before you can join them. Although there are some open membership credit unions (meaning anyone can join), most are affiliated with a specific location, employer, union, or other organization that you must be a member of in order to join. And you have to apply for membership – which means they can reject your application. That being said, chances are you can find a credit union that meets the requirements – in addition to any guilds or unions you may be a member of, many alumni associations and community organizations have an associated credit union.
- Less technically savvy. Banks tend to be at the forefront of financial technology, while credit unions (which are smaller and run by the community) tend to lag behind. If you’re the type to manage your finances from your phone, you might have better luck with a bank.
- Less resources. Credit unions are also likely to offer fewer branches you can go to, fewer ATMs to access funds, and less flexibility in terms of their loan structure. If you just need a mortgage at the highest possible rate, this may not be a problem. But since you will have to join a credit union and fund and maintain some kind of account there, you should be aware of the potential lack of resources.
When you take out a mortgage, you are probably taking on the biggest debt of your life, so you should consider all your options. Credit unions may not be the best choice for everyone, but it’s your responsibility to research the situation before you sign a contract with your name (about 40 times).