Credit Union vs Bank: Which Mortgage is Better

The decision to apply for a mortgage may leave you wondering whether a credit union or a bank is the best lending resource for you. You may ask yourself: credit union vs bank, where should I go? The answer to this question can be discovered with more of an understanding of the differences and similarities between a credit union vs bank.

Both financial institutions offer overlapping opportunities, but the differences between a credit union vs bank may sway potential home buyers in one direction or the other when it comes to applying for a mortgage pre-approval. If you’re considering purchasing a home, reviewing these differences is worth your time and consideration.

Credit Union vs Bank: Is There a Difference?

If you were to compare the physical layout of a credit union vs bank, they may look quite similar and both typically offer comparable products and services to assist homebuyers in making sound financial decisions.

However, an underlying fact about the organizations creates a significant difference. Banks are generally privately owned corporations designed to provide stockholders with a substantial return on their investment. These for-profit organizations typically encourage their employees, the ones serving you, to strive for sales goals to ensure they’re making enough money for the stockholders of the bank.

By contrast, credit unions are not-for-profit organizations that are owned by their members. Typically, the minimum balance requirement for your savings account represents your membership share in the credit union. As a member, you can attend the credit union’s Annual Meeting where updates are shared, and members can vote on items pertaining to the future of the credit union and its board of directors. As a member, you have a vote and a say in the organization’s direction.

The credit union's goal of serving their members’ financial needs often results in mortgage products with competitive interest rates, reduced processing fees, and excellent service. They are there to help you find the product that best fits your budget and needs, versus selling a product to meet a sales goal.

Credit Union vs Bank: What Mortgage Options Are Available

• Conventional Loans: This catch-all term refers to wide-reaching loan products not backed by the federal government. These loan products are available from lenders like credit unions. Often guaranteed by a private resource or government-sponsored Fannie Mae or Freddie Mac, people with robust credit scores, debt-to-income ratios, and 20 percent down payments may find them favorable. These loans are typically offered as a fixed or adjustable-rate mortgage (ARM) format.

• FHA Loans: These loans are backed by the federal government (through HUD) and require a minimum down payment of 3.5%.  Underwriting is more flexible on FHA loans allowing for lower credit scores and higher debt-to-income ratios.  Interest rates are usually lower for FHA loans vs. conventional loans, but the Mortgage Insurance Premium (MIP) costs are typically higher. 
  
  

• Construction Loans: Qualified borrowers can access Construction Loans offering access to money to purchase land and hire a contractor to build their dream home.

• U.S. Department of Agriculture (USDA) Mortgage: This government-backed loan program focuses on buyers in primarily rural areas. It provides flexibility similar to FHA Loans and requires no down payment. Unlike other mortgages, USDA Loans are restricted to specific geographic areas and have income restrictions on them.

• VA Loans: Open to members of the military, veterans, and surviving spouses, VA Loans offer competitive interest rates and make homeownership easier for those who have served our country. Qualified borrowers can anticipate securing a mortgage without needing a down payment.

• First-Time Home Buyer Programs: First-Time Home Buyer Programs help new home buyers by offering more flexible requirements to qualify and lower down payment obligations.

When shopping for a home loan, the difference between a fixed-rate and adjustable-rate mortgage (ARM) is important. Fixed-rate mortgages establish a monthly payment that does not change over the life of the loan. By contrast, an ARM is typically fixed for a shorter period of time and then may adjust higher or lower depending on the current state of the market. It’s essential to discuss the best mortgage option for your needs with a member of CCCU Mortgage Services team.

Discover your maximum house-hunting budget with our free guide:
How Much House Can I Afford in Oregon?

Mortgage Rates & Fees

When working through mortgage rate and fee structures, it’s important to understand that neither a bank nor credit union can offer a zero-interest mortgage or waive all the fees. Banks do have to provide their stockholders with a return on their investment, while credit unions reinvest any returns into offering better products/services and more affordable lending opportunities for their members. Choosing to work with a credit union like CCCU is akin to reinvesting in yourself and the community.

As you compare mortgage programs and mortgage interest rates, be sure to look into the mortgage fees associated with applying for a mortgage such as the origination fee, document preparation fee, appraisal fee, credit report fee, title fees, and other closing costs. Those factors in the credit union vs bank decision can add up fast.

Applying for a Mortgage at a Credit Union Means You Are Supporting Your Community

As a financial cooperative, CCCU helps families achieve their dream of owning a home in Oregon by offering a variety of affordable mortgage options. CCCU reinvests the modest interest rates and fees into strengthening our ability to better serve our membership. We reinvest in the local communities that we serve and call home. If you’re considering buying a home, get pre-approved for your mortgage with CCCU today!