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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.
