Which Home Loan Option Is Better for You?
Finding a trustworthy lender is an important step in purchasing a home. With the right lender, you can find the right loan, secure a lower interest rate and feel confident about the entire mortgage process. Deciding between a bank and a credit union for your home loan means understanding how both types of financial institutions work and what best fits your homebuying journey. In this blog, we will discuss how banks and credit unions differ when it comes to getting a home loan.
Credit Union Mortgage vs. Bank: What’s the Difference
Both financial institutions provide core banking services. For example, both will accept your money for deposit in a checking or savings account as well as lend you money for a credit card or to buy a vehicle or home. Both offer many of the same types of mortgages as well as require appraisals, title work, underwriting, disclosures and closing documents.
The differences, however, include their ownership structure, membership requirements, customer service, loan servicing and more. Here’s a closer look.
- Credit Unions: Credit unions are not-for-profit financial cooperatives that offer banking services at low cost as part of their mission to help people. To qualify for membership, an individual must meet its field of requirements. For example, at Travis Credit Union, you can only become a member if you live, work, worship or attend school in any of TCU’s 12 Northern California counties.
Credit unions typically offer personalized, relationship-based banking that’s built on their people-helping-people philosophy. When considering a home loan from a credit union, one difference is that your mortgage will likely remain with that institution and not be sold to the secondary mortgage market, according to Bankrate.com.
- Banks: Banks are for-profit financial institutions. For their products and services, certain thresholds or requirements must be met to avoid being charged a fee. Anyone can become a bank customer. National banks have more branches than regional or local banks, making them more convenient for customers who are traveling or moving to a different state.
Banks tend to sell their mortgages to secondary mortgage companies. This means your mortgage payments will change to a new lender and not stay with the bank that originated from your home loan.
How Bank Mortgages Compare to Credit Union Home Loans
Credit unions may offer fewer fees, lower interest rates, personalized service and easier loan approval. Banks, however, have a broader variety of mortgage products, more advanced digital offerings, greater accessibility and no membership requirements.
Here’s a short look at what each offers when it comes to home loans:
- Credit Unions: A mortgage with a credit union may come with a lower interest rate (depending on your credit) and fewer fees compared to banks. Having a lower interest rate will save you money. As mentioned, home loans originated with a credit union will likely remain local, letting you build a long-standing relationship with your credit union. According to America’s Credit Unions, credit unions are more likely to make lower- and middle-income loans than other originators (Bankrate.com).
- Banks: Getting a home loan with a bank may give you a wider choice of mortgage product options. This is particularly useful for borrowers interested in a specific type of mortgage. Additionally, national banks tend to have more locations throughout the country, making it easier to find a branch in your city.
The bottom line is that credit unions often emphasize service, local decision-making and potentially lower costs. Banks offer greater accessibility, more options and larger networks. Deciding which to choose depends on your location, financial needs and personal preferences. Start with your current primary financial institution since you already have a relationship with that lender.
Do You Need to Be a Member to Get a Credit Union Mortgage?
If you want to apply for a mortgage at a credit union, you’ll need to become a member first. Find one with a field of membership that you qualify for, then apply for your mortgage. Your new membership will be included as part of the entire process. Becoming a credit union member opens the doors for affordable banking products and services. Additionally, credit unions put funds back into the communities they serve.
How Travis Credit Union Can Help with Your Home Loan?
Travis Credit Union has helped generations of members with their home loans. Our knowledgeable mortgage loan consultants will work with you to find the right loan that fits your needs. TCU offers fixed-rate and adjustable-rate mortgages, VA loans, FHA loans and home equity financing, too.
With competitive rates, flexible terms and a home loan team that stands behind you, visit traviscu.org to see how a TCU home loan can help you achieve your dreams of homeownership. Also, TCU’s Knowledge Base offers free online courses on topics such as buying a home that can get you ready. Get started today so you can become a homeowner tomorrow.
Frequently Asked Questions
What is the main difference between a credit union mortgage and a bank mortgage?
The biggest difference is that credit unions are member-owned, non-profit institutions, while banks are for-profit businesses. This can affect factors such as fees, rates, customer service and loan servicing.
Are mortgage interest rates lower at credit unions than banks?
Credit unions may offer lower interest rates and fewer fees because they operate as non-profit organizations. However, rates vary by lender, loan type and borrower qualifications.
Do I need to be a member to get a mortgage from a credit union?
Yes, you must become a member of a credit union before applying for a mortgage. Membership requirements vary by institution and are typically based on where you live, work, worship or attend school.
Do banks offer more mortgage options than credit unions?
Many banks offer a wider range of mortgage products and lending programs. This can be beneficial for borrowers with unique financial needs or specialized loan requirements.
Will my mortgage stay with the original lender after closing?
Credit unions are more likely to keep servicing the mortgages they originate. Banks often sell mortgages to secondary lenders, which may result in a change to where you send your payments.
Which is better for personalized service: a credit union or a bank?
Credit unions are known for their relationship-based, member-focused approach to service. Banks may offer strong service as well, but their focus is often on serving a broader customer base.
How do I choose between a credit union and a bank for my home loan?
Compare interest rates, fees, loan options, customer service and convenience before deciding. The best choice depends on your financial goals, borrowing needs and personal preferences.