With many banks losing their credibility by the day, and loans continuing to evaporate, could a local credit union be the answer for finding a great deal on your next home loan?
What is a Credit Union Anyway?
Credit unions are similar to banks in that they accept deposits, offer checking and savings accounts and provide credit for a wide range of needs including auto loans and home loans.
However, credit unions differ in that they are member-owned financial cooperatives. They promote themselves as “not-for-profit” organizations designed for building up the local community, which gives them tax and operating advantages over banks that are clearly not charitable institutions.
The American Bankers Association regularly lobbies against moves by credit unions to expand their lending capabilities as they feel that they have an unfair competitive advantage. Lower operating costs have often enabled these unique financial institutions to offer extremely low mortgage rates and low closing costs. However, due to their loyalty to their members, they could be more conservative in their lending in some circumstances.
While you may not have thought about approaching credit unions for a home loan before, they are certainly not new to the mortgage game. In fact, during the recent hard times other lenders have been through, credit unions increased their mortgage volume from $55 billion in 2006 to $96 billion in 2009.
Advantages of Choosing a Credit Union for Your Home Loan
While borrowers will essentially find that credit unions offer the same types of banking and lending services as actual banks, these institutions promote themselves as the best choice for various reasons, including:
- Low mortgage interest rates
- No fees
- Personalized service
- Speedier closings
- Better rates on other credit products including auto loans
- Higher returns on CDs to offset borrowing costs
Do Credit Unions Have the Home Loans I’m Looking for?
While different credit unions may offer slightly different loan programs and options, you can expect to find a full range of mortgage solutions for purchasing a home, refinancing and completing home improvements.
Borrowers will find a variety of conventional mortgage options available, including 30- and 15-year fixed-rate mortgages, ARMs (adjustable rate mortgages) of varying lengths, home equity loans as well as government backed home loan programs like FHA and VA home loans and HomePath Financing. Basically, anything you’ll find offered at your local bank you’ll find here.
Why Doesn’t Everyone use Credit Unions for Home Loans?
Obviously, despite their growth, most people don’t turn to credit unions for their loans. Why not?
For many it is because they simply don’t understand how they work or don’t know that they offer home loans. Secondly, these loans are only available to members of credit unions. Membership for most types of credit unions is restricted to certain groups. The most popular are corporate credit unions and industry specific ones. However, with more than 7,000 state chartered or federally chartered credit unions across the U.S., and a growing number of location-based community unions, there are many options to explore no matter where you live or want to move.
Of course, the home loans that are offered by credit unions aren’t always a great fit for everyone. Even those who are members of one right now may not get approved for the loan they want.
Borrowers also shouldn’t blindly fall for the slick marketing and promises of better deals without shopping around. Always explore all of your options and make sure you are getting a fair deal. This is especially true of the “not-for-profit” aspect. Credit unions don’t just give money away.
Those who don’t fit the conventional loan mold and need more lenient underwriting guidelines, alternative lending options, and more flexibility – or real estate investors who have already maxed out the number of loans they can have with one institution – should look further afield before giving up.
Depending on the specifics of your situation, you may want to check out specialist construction or rehab lenders, hard money lenders, or talk to a mortgage broker or loan officer who is an expert in helping self-employed borrowers or those with credit or documentation challenges.