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MORTGAGE KNOWLEDGE CENTER

PenFed Mortgage with Confidence

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FHA LOANS

Rates starting at % (APR %)¹

 

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1. Discover you’re eligible to become a PenFed member

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  1. Home
  2. Mortgage Knowledge Center
  3. 10 Reasons FHA Loans and Credit Unions Go Great Together

MORTGAGE

10 Reasons FHA Loans and Credit Unions Go Great Together

What you'll learn: Why credit unions offer low FHA rates, closing costs, and FHA loan requirements

EXPECTED READ TIME: 7 MINUTES

Updated October 17, 2023

If you haven’t considered getting a home loan through a credit union, now is the time.

Here are 10 reasons that an FHA loan may be the right choice for you, and why credit unions may make the best FHA mortgage lenders.

1. Credit unions offer exceptional services

Applying for a home loan can be a pressure-filled experience. While you want to be excited about the potential of the home you’re purchasing, your days are filled with gathering and submitting paperwork for mortgage underwriting. Working with a faceless, impersonal lender, can make for a nerve-wracking and frustrating experience.

By contrast, credit unions may offer personalized service for their members. You can call in and ask any questions to better understand the approval process. When you get a credit union FHA loan, you can also take advantage of their one-stop-shop for all of your financial needs.

2. Credit union mortgage rates are typically lower

Another advantage of FHA loans: You can often enjoy lower interest rates when comparing conventional loan rates vs. FHA . But why are FHA rates lower than conventional? Interest rates are tied to the perceived risk that lenders anticipate in making a loan. Lenders have less risk with FHA loans because they are backed by the Federal Housing Administration and covered by a mortgage insurance premium (MIP) – resulting in a more favorable interest rate.

Some of the best rates are available through credit union FHA loans. Unlike banks, credit unions are not-for-profit and may pass their tax savings on to their members in the form of lower loan interest rates and higher savings rates. For example, here are a few national average rates between banks and credit unions in Q2 2023.

Product

Credit Unions

Banks

30-Year Fixed-Rate Mortgage

 6.72%

6.76%

60-Month New Car Loan

 5.82%

 6.44%

5-Year CD – $10K

 2.78%

1.91%

Source: National Credit Union Administration

3. FHA loans require lower down payments

One of the most exciting benefits of FHA loans is the lower down payment requirement. Depending on your credit score, you can get into a home with as little as 3.5% down. Unlike a conventional loan, an FHA mortgage is designed to help borrowers who may not have the traditional 20% to put down, especially in pricier markets where this can represent an almost insurmountable barrier to homeownership.

Add the low down payment of an FHA loan to the savings on other products available to credit union members, and you have a truly powerful way to increase home affordability. With an FHA loan, you need less time to save up for your home so that you can enjoy the benefits of homeownership sooner than you ever thought possible.

4. Credit score isn’t everything

One of the primary purposes of the FHA loan is to help make homeownership more possible for those buyers who may not qualify for a conventional mortgage. The FHA sets a minimum credit score of 500, but your lender may require a higher minimum credit score. Contact your lender to discuss their minimum credit score requirements. (Don’t worry: If you need to, there are simple steps to help improve your credit score.)

5. You have options when it comes to property types

FHA loans are available for a wide variety of home styles, including single-family homes, condominiums, and new construction. Borrowers who are interested in investing in real estate may even obtain an FHA loan for a multi-family dwelling of two to four units as long as you spend at least one year using one of the units as a primary residence.

In addition, there is a wide variety of FHA home loans for virtually any type of home financing scenario. These include refinancing options, loans for home improvements and energy-efficient upgrades, and graduated payment loans that increase as income and home equity increase.

6. Mortgage insurance may be more affordable with an FHA loan

To make the FHA home loan program possible, the FHA offers mortgage insurance to lenders to provide reassurance that the loans will be repaid. FHA borrowers pay an up-front and monthly mortgage insurance premium (MIP) for the life of the loan (unless the down payment was 10% or higher). 

Down Payment

MIP Length

Under 10%

Life of the loan

10% and higher

11 years

This is similar to private mortgage insurance (PMI), which is required for conventional loans when there is a down payment of less than 20%. But generally, mortgage insurance is cheaper for FHA loans. And once an FHA borrower reaches 20% equity, you can refinance to a conventional loan to remove MIP altogether.

7. FHA has no income limits

Many low-down payment options for conventional mortgages also include low income ceilings. Higher-earning borrowers make too much for these programs and, in most cases, need to put down 10% or more – which can add up to a significant amount.

With an FHA loan, there are no income limits restricting your chance of approval. This allows you to choose the loan product that works for your financial needs no matter what neighborhood you’re focusing your home search in.

8. FHA loans are available for first-time homebuyers

First-time homebuyers don’t have existing home equity to draw on when making their down payment. The FHA loan’s lower cost and affordable down payment options make it a great choice for first-time homebuyers.

In addition, because the FHA loan allows gift funds to be put toward the down payment, it’s the perfect option for younger borrowers whose families want to contribute toward their purchase. In fact, FHA loans allow even charitable organizations and employers to contribute toward the purchase of a home for qualified applicants.

9. Closing costs and fees may be lower

Did you know a seller can pay up to 6 percent of the sales price toward some of an FHA buyer’s closing costs? Closing costs can average 3 to 5 percent of the loan amount. Negotiating to have the seller pay for some of these can help you get into your home with less out of pocket.

Credit unions are committed to affordability. Since they are member-owned and not subject to the shareholder pressures placed on other financial institutions, credit unions are able to provide more saving opportunities.

10. Housing affordability is a top priority for the FHA and credit unions

When you add it all up, the FHA home loan program is designed to help all kinds of homeowners make their real estate dreams a reality. With lower costs and more availability for borrowers from a wide range of financial backgrounds, the FHA loan reflects a commitment to making homes more affordable.

Add to that the way that credit unions are set up to provide financial solutions for their members, and you have a truly powerful formula for success. While an FHA loan borrowed through a bank or online lender offers some advantages, credit unions may offer some distinct benefits.

So: Is it better to get a loan through a credit union? As you’ve learned, credit union mortgage requirements can work in your favor – especially when it comes to FHA loans and finding the home of your dreams at a price you can afford.

Want to know everything you need to know about FHA loans? Download our eBook.

For more information about PenFed Mortgages:
 

PenFed Mortgage: 

800-970-7766

Get Started

SIMILAR ARTICLES

Credit Union vs. Bank: What Is the Difference?

Banks are for-profit while credit unions are not-for-profit. From ownership to loan rates, see the other differences between a credit union and a bank.

Understanding and Comparing Mortgage Costs Between Banks and Credit Unions

Explore the differences between bank & credit union mortgages, including mortgage rates, fees, and servicing to help make the best decision for you.

smart home features

Why You Should Choose an FHA Loan

Think buying a home is out of reach? If you have a low or no credit score, high amounts of debt, or little savings, an FHA loan could be the solution for you.

plan to buy house in six months

Top FHA Frequently Asked Questions

Get your FAQs for FHA loans answered. From how many FHA loans can you have to streamline refinances, seasoning fund requirements, and 203K.

Someone on tablet looking at home improvements.
image

FHA LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Home Buying Steps

  • Getting Started
  • Finding a Home
  • Getting a Mortgage
  • Home Ownership

Mortgage Topics

  • VA Loans
  • Conventional Loans
  • First Time Homebuyer
  • Home Equity
  • Homebuying 101
  • Checklists
  • Adjustable Rate Mortgages
  • PenFed Top 10
  • Refinance
  • Jumbo Loans
  • FHA
  • Videos

Mortgage Products

  • Mortgage Center
  • Refinancing
  • Home Equity

PenFed HELOC

Rates as Low as % APR* with flexible use of funds

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Disclosures

1Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on discount point, which equals percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 96.5%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.

*Prime Rate is % as of . The APR for this Home Equity Line of Credit (HELOC) is based on prime plus a margin and can change monthly. Fixed Rate Advances will be amortized over the Fixed Rate Advance Term, with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin, and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes.

  • Annual Fee: Notwithstanding the foregoing, an annual fee of $99 will be assessed on each account anniversary.
  • Home equity lines of credit (HELOC) are variable rate loans and the interest rate is subject to increase after consummation of the loan on monthly basis. Closing costs range between $500 and $8,500 for credit lines of $500,000. Contact a representative for additional details.

Appraisals: PenFed will attempt to establish value via an independent method. If that method is unsuccessful, or the value is not sufficient for the amount requested, an appraisal will be required regardless of CLTV. An appraisal is always required in the following circumstances:

For all loans with a loan amount greater than $400,000.

If an appraisal is required, it must be ordered by PenFed. You will be contacted for authorization and payment prior to ordering. Appraisal fees average $550 to $850 (some run higher).

  • Closing Cost Credit: PenFed will pay most closing costs associated with a home equity line of credit (HELOC), which includes credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, property search, and quick close. Member is responsible for any city, county, and/or state taxes if the subject property is located in FL, LA, MD, MN, NY, TN, or VA. If an appraisal is required, the member, who is responsible for the fee whether or not the loan closes, will pay the cost.

Interest may be tax deductible, consult a tax advisor for further information regarding the tax deductibility of interest and charges.

Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.

Fixed Rate Advances will be amortized over the Fixed Rate Advance Term with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes and 4.75% for investment properties.

Property Insurance: Property insurance is required.

Multiple PenFed Loans: Multiple PenFed Equity loans and HELOCs are available as long as the member and collateral qualify (except Texas). For Equity loans and HELOCs the total indebtedness cannot exceed $500,000 for all PenFed Equity and HELOCs combined.

PenFed does not lend on:

  • Mobile homes
  • Co-ops or time-shares
  • Properties that are currently listed on the market for sale
  • Commercial property or property used for commercial purposes, even if a residence is part of the property
  • Undeveloped property (land only)
  • Properties with more than 4 units

Properties that are currently under major construction/renovations: Property must be fully livable, with no safety issues. (Examples: no missing rails from stairs/decks, no open walls with wires showing, missing kitchen appliances/counters, missing bath fixtures or unfinished pool).

  • Additional limitations may apply

Home Equity Line of Credit:

  • This Account has a Draw Period of 10 years, followed by a repayment period of 20 years.
  • If only minimum payments are made during the draw period, the loan balance will not decrease.
  • In Texas, the maximum CLTV available is 80% on owner occupied properties. Additional restrictions apply in Texas, so please ask a representative for details.
  • In all other states, the maximum CLTV is 85% on owner occupied properties and second homes. Additional restrictions or requirements may apply based on application characteristics.
  • Property type of Condo has a maximum CLTV of 80%.
  • The maximum CLTV available is dependent on credit qualification.
  • Rates vary depending on owner occupancy and CLTV and other loan criteria.

Minimum Loan Amount Requirements in all States:

  • For an owner occupied property or second home the minimum loan amount is $25,000 and the maximum amount is $500,000 with a CLTV of 85% or less of the fair market value.

Other terms and conditions apply; call 844-918-4307 to speak with a representative for details. All rates and offers are subject to change without notice. To receive advertised product, you must become a member of PenFed.

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This credit union is federally insured by the National Credit Union Administration. Rates are current as of December 2023 unless otherwise noted and are subject to change.

APY = Annual Percentage Yield
APR = Annual Percentage Rate


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The content you are about to view is produced by a third party unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Realty, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Realty, LLC, see the Affiliate Business Arrangement Disclosure.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party Website.


The content you are about to view is produced by a third party website that is unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Title, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Title, LLC, see the Affiliate Business Arrangement Disclosure.


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