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Why a Credit Union is Great for a Mortgage?

What you'll learn: Why when shopping for a mortgage you should consider joining a credit union.

EXPECTED READ TIME: 9 MINUTES

If you are looking for a mortgage, maybe you have considered a credit union but are wondering if you can get that mortgage without being a member. Yes, you can — some credit unions approve mortgages for nonmembers. However, becoming a member is usually quite easy, and the advantages you can gain by also being a member of the credit union will save you considerably on the mortgage. Credit unions work on a different business model than banks, giving their members several advantages. Let’s take a look at credit unions and see why they are a great source for a mortgage.

Are Credit Unions a Hassle To Join?

No, not at all. While a credit union may have fewer branches than some of the bigger nationwide banks, most credit unions allow you to join online. You just need to provide some information and then supply a few pictures (your ID and proof of address) to confirm who you are and where you live. This is a simple process that takes just a few minutes to complete. Some credit unions can open the account instantly while others require a business day or two to verify your information.

In the past, the rules to join were stricter and you needed to have a certain occupation (teacher, soldier, a specific company, etc.), but many credit unions now allow anyone to join. Some credit unions require a small fee or donation (from $3 to $30) to join, but some credit unions will even refund you this fee, allowing you to join for free.

Joining a credit union means you become a part owner and you will have a vote in its operations. Votes are allocated on a per-member basis, not related to the size of a member’s deposits.

Smart Consumers Shop for a Mortgage

If you are searching for a mortgage, one of the best things you can do is shop around. Most banks will not tell you to do this, but credit unions encourage it. The reasons being are twofold:

  1. Credit unions are nonprofit. Banks and credit unions have different business models and, therefore, different goals. A bank has shareholders as its owners, and with this structure, the bank’s goal is to generate profits for those shareholders. Credit unions are nonprofit, cooperative structures where their members are the owners. With this structure, a credit union’s goal is serving its members. If a credit union is not able to provide the best mortgage for the member and another mortgage is chosen, it has fulfilled its goal.
  2. Credit unions have great rates and low fees. Because a credit union is nonprofit, it is able to charge lower rates and smaller fees for its loans. That is why they encourage their members to look around. Because consumers find the credit union’s rates and fees will end up saving the borrower, they will, therefore, choose to have their mortgage with the credit union.

The best study to date was done by Freddie Mac, published in 2019, and it shows how shopping around can significantly benefit the borrower. Freddie Mac found that for a borrower looking for a $250,000 mortgage (which is less than the current national average), by receiving just one extra rate quote, they would save an average of $1,435 over the life of their loan. Moreover, 80% of those borrowers would save between $966 and $2,086 by getting a second lender’s quote. Borrowers could save even more if they talked to a few other lenders. On average, those who received five rate quotes saved $2,914, with the 80% range being between $2,089 and $3,904.

Why a Credit Union’s Rates May Be Lower

Not all mortgages are equal. When you shop around, you will find that credit unions usually have lower rates. Profit is the difference: With banks, they need to make profits to satisfy their shareholders.

Credit unions can offer low mortgage rates because they borrow against themselves, being responsible to their depositors rather than shareholders who are looking for a return.

Because a credit union’s mission is to provide the best results for its members, it is not concerned with making a profit. Taking the profit out of this equation means that a credit union has three options to choose from:

  • Lower the rate it charges for its loans.
  • Lower the fees it requires for its services.
  • Increase the rate of return provided to its depositors.

Usually, the members will vote to have all three of these changes made on a somewhat proportional basis so that all of the members will be satisfied.

While rates will be lower, you should also look at a lender’s fees. Securing a mortgage with a credit union will often result in lower origination fees and processing costs. These reduced fees provide the potential to save several hundred dollars to thousands of dollars, which will normally be part of closing or ongoing costs.

As a Credit Union Member, You’ll Enjoy Many Perks

When you become a credit union member, you can save even more on your mortgage. The most immediate saving benefit is apparent if you set up an automatic payment for the mortgage. Also, with a direct deposit from your work, you may have access to your money a day or two faster.

Checking and savings accounts from credit unions usually have several benefits, with lower fees being first. Additionally, using an ATM or making a transfer will have a minimal fee or no fee at all. Banks usually have a higher minimum balance than what is required by a credit union to get fee-free checking, which can be excessive if you get hit by an overdraft fee.

Loan qualification standards are usually a bit more lenient with credit unions. Your credit score may not have to be as high and they may could require as large of a down payment to get the same rate of a loan.

Credit unions are more likely to work with borrowers if times are tough, which can keep those with short-term financial troubles in their homes.

Credit Unions Offer a Wide Variety of Mortgages

No matter what kind of mortgage you are looking for, the majority of credit unions can help you. Most credit unions offer conventional ,FHA, VA, USDA and jumbo loans. These can be both fixed-rate and adjustable-rate mortgages. Even if you’re not yet a member, you can talk to a credit union about your options. If they are right for you, you can become a new member and take advantage of all the benefits that credit unions provide.

When you’re shopping for a home loan, consider joining a credit union. You’ll be amazed at the advantages.

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