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Top 10 Advantages of an FHA Loan – Especially with a Credit Union

What You'll Learn: Advantages of an FHA Loan – Especially with a Credit Union


While you know that your credit union offers various financial services, you may be wondering if your credit union also offers a variety of financial products. One question we hear a lot is, “Do you only work with conventional loans, or do credit unions give FHA loans as well?”

The good news is that many credit unions offer FHA loans along with many other loan options, allowing you to choose the right home financing for your credit history, income level, and target market. Here are 10 reasons that an FHA loan may be the right choice for you, and why to check with your credit union first when comparing rates.

#1 FHA Loans Require Lower Down Payments

One of the most exciting aspects of the FHA loan is the lower down payment requirement. 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 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.

#2 More Favorable Interest Rates From Credit Unions

FHA borrowers often enjoy lower interest rates than borrowers for conventional mortgages. Interest rates are tied to the perceived risk that lenders anticipate in making a loan. The lender has less risk 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 FHA loan rates are available through credit union FHA loans. Because credit unions are nonprofit, they may pass their tax savings on to their members in the form of lower interest rates for various loan products, including FHA mortgages.

#3 Credit Unions May Have More Affordable Fees

Credit union members frequently find that the fees they’re charged at the closing table are lower than those charged by banks and online mortgage lenders. This is due to the credit union’s commitment to affordability, made possible because it is member-owned and not subject to the shareholder pressures placed on publicly-traded financial institutions.

In addition, because gift funds can be used for costs associated with FHA home mortgages, it can be easier for borrowers to get into a home.

#4 FHA Offers Better Options 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.

#5 Help for Borrowers with Lower Credit Scores

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. FHA loans are available for borrowers with credit scores as low as 500 with a 10% down payment and those with higher debt-to-income ratios.

Similarly, credit unions may be more open to working with borrowers who have struggled financially in the past. Credit union lenders are focused on finding solutions for their members to help them move forward financially by providing them financial education.

#6 FHA Funds Various 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 can even obtain an FHA loan for a multi-family dwelling of two to four units as long as they 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.

#7 FHA Offers More Affordable Mortgage Insurance Premiums (MIP)

One of the differences between the lower down payment FHA loan and a conventional loan is that most FHA loans have MIP for the life of the loan. This is an add-on to the mortgage that lowers risk for the lender and provides added reassurance that the loan will be repaid.

MIP is required on all FHA loans, including credit union FHA loans. Private mortgage insurance (PMI) is required for conventional loans when there is a down payment of less than 20%. Generally, the mortgage insurance premiums are cheaper for FHA loans. Once an FHA borrower has 20% equity, they should consider refinancing to a conventional loan to remove MIP altogether.

#8 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.

#9 Exceptional Credit Union 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 or sit down at the local branch 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 services.

#10 Commitment to Housing Affordability

When you add it all up, the FHA loan 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. 

Credit union FHA loans provide more ways for you to buy the home of your dreams at a price that you can afford. Explore your options and find the best credit union for your FHA loan.

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After your application, we’ll help you:

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