Credit union vs. bank mortgage: How to choose
Key takeaways
- Credit unions may offer lower mortgage rates and fees, but often lack the in-person branches and digital services that banks do.
- Bigger banks might offer a wider variety of loan products and don’t mandate that you become a member.
- It may be easier to get a mortgage with a credit union you already have joined.
You have a lot of options on where to get a mortgage, and it’s not just among big or regional bank lenders. Credit unions are increasing their stake in the mortgage market, as well. Not only do credit unions offer competitive loan terms and a more personalized customer service experience, but they also feature more flexible lending criteria in some instances.
Still, depending on your financial situation, a traditional bank could be a better fit. If you’re trying to decide between a credit union and a bank for your mortgage, consider these pros and cons.
Credit unions vs. bank mortgages: similarities and differences
Bank loans are a popular choice, but credit union mortgages certainly have their appeal, too. These lenders share similarities but have distinct differences that can impact your choice of where to get a mortgage.
Similarities between credit unions and bank mortgages
Credit unions and banks share many similarities, such as:
- Application process: With many banks and credit unions, you can apply for a mortgage online, over the phone or in person at a branch.
- Mortgage types: Many banks and credit unions offer a variety of mortgage loans, such as fixed and adjustable-rate mortgages, conventional mortgages and FHA loans.
- Other financial products and services: Credit unions and banks can also be a one-stop shop for your finances, offering auto loans, savings and checking accounts, personal loans and CDs.
Differences between credit unions and bank mortgages
While on the surface, credit unions and banks look similar, there are important differences, including:
- Profitability: Typically, credit unions are non-profits, whereas banks are for-profit institutions.
- Membership: When it comes to new customers, banks are open to the public, but credit unions can be more choosy. For example, you may need to reside in a certain state or locality, or work in a specific profession to join some credit unions.
- Loan programs: National banks may offer a wider array of loan types than credit unions.
- Retaining loans: Credit unions often hold onto the mortgage they originate (also known as portfolio loans), whereas banks often sell the mortgages they originate on the secondary mortgage market.
Pros and cons of getting a credit union mortgage
When researching mortgage lenders, credit unions might not be on your radar — but perhaps they should be. Often, these financial institutions will have lower rates, more flexibility and better customer service than big banks or online lenders.
Of course, you need to be a credit union member to enjoy these perks. However, joining is typically simple and worthwhile — just ask Bankrate Home Lending editor Laurie Richards, who recently took out a mortgage through a local credit union and was pleasantly surprised by the experience.
Had we chosen a bigger bank or lender, I’m not sure we would have received the same level of customer service and accommodation as we did with our local credit union.— Laurie Richards, Editor, Home Lending, Bankrate
Still, joining a credit union isn’t the right choice for everybody. Before making your decision, consider the benefits and drawbacks of credit union mortgages.
Pros of getting a credit union mortgage
- Fewer fees: Credit unions pass savings onto members, resulting in fewer fees. This is different from banks, whose sole purpose usually involves generating revenue for investors, says Bob Dorsa, former president of the American Credit Union Mortgage Association in Las Vegas. “[A credit union’s] ‘stockholders,’ per se, are the members, the customers.”
- Lower rates: If you’re looking to get the best mortgage rate possible, there’s a good chance you’ll find it at a credit union. “On average, credit unions offer lower rates on mortgage loans,” says Curt Long, chief economist and vice president of Research for the National Association of Federally-Insured Credit Unions (NAFCU).
- Better personalization and service: Credit unions are known for their superior service, says Long. For example, there’s a greater chance that you’ll know your servicer. “Credit unions retain a higher share of the loans they originate in their portfolio than other lenders, where it is more common to sell the loan and its servicing to a third party,” says Long. That leads to borrowers being more likely to maintain the relationship with the lender.
- Easier approval: Potential homebuyers who don’t have a traditional profile, such as an excellent credit history, can benefit from getting a credit union home loan, says Long. Credit unions “are more likely to make lower- and middle-income loans than other originators.”
Cons of getting a credit union mortgage
- Membership requirements: “Many credit unions have membership requirements based on their target market,” says Rich Arzaga, founder and CEO of The Real Estate Whisperer Financial Planning and Education in Monument, Colo. If you don’t meet the requirements to join, you won’t be able to get a mortgage with that specific credit union.
- Lagging technology: If you’re looking for a mortgage lender with a first-rate online experience or intuitive technology, you may want to consider a bank or online institution instead of a credit union. “For those who prefer to use technology for tracking their finances, credit union technology lags,” says Arzaga.
- Limited branch and ATM access: In general, most credit unions have a smaller geographical imprint than national banks. This can translate to fewer branches and ATMs. Some credit unions participate in national ATM networks or offer to reimburse ATM fees up to a certain amount.
- Potentially higher cost: While they often provide great rates for their members, sometimes credit unions simply can’t compete with larger banks. “For those who are inclined to only shop at credit unions, the biggest downside is that banks will periodically offer sharply lower mortgage rates,” says Arzaga.
Pros and cons of getting a mortgage with a bank
Similar to credit union mortgages, there are also key advantages and downsides of taking out a mortgage with a bank.
Pros of getting a mortgage with a bank
- Loan options: Banks generally offer a broader variety of mortgage products. This can be beneficial for borrowers looking for specific types of mortgage loans or for those with unique financial situations.
- Accessibility: National banks often have more physical locations than credit unions, which means you can enjoy the convenience that comes with having access to in-person service when you need it. Instead of relying solely on phone, chat or email support, you can visit a local branch to speak with a loan officer.
- Membership not required: Unlike credit unions, banks offer mortgages to anyone who qualifies; you don’t have to be a member to apply.
Cons of getting a mortgage with a bank
- Profit-driven: Banks are typically for-profit institutions, so you might pay more fees and get a higher interest rate than what a credit union could offer you.
- Less personalized service: Unless you’re doing business with a community or regional bank, most banks serve a large amount of customers nationwide. As a result, the service you receive might not be as personalized as you’d prefer.
- Stricter lending guidelines: Banks’ mortgage approval criteria, including credit and income guidelines, may be more stringent than credit union mortgage requirements.
Credit unions vs. bank mortgages: How to choose the right lender
Banks make up a large portion of the mortgage market, but don’t overlook credit unions when shopping for a lender. These member-owned institutions provide many benefits, such as lower rates, fewer fees and exceptional customer service.
“Credit union loans are a resource for those who want to avoid supporting banks (this is a strong preference for some), prefer to have a personalized experience and who seek preferred rates,” says Arzaga.
However, a bank could be a better fit if you aren’t already member of a credit union or prefer a financial institution that leverages technology to provide a more seamless lending and loan management experience.
If you need guidance on how to choose a credit union or bank for your mortgage, start by exploring customer reviews and asking for referrals from friends or family. No matter which type of institution you decide on, make sure to shop around with at least three mortgage lenders.
FAQ about credit union vs. bank mortgages
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Both federally-insured credit unions and banks are safe places to keep your money. The National Credit Union Administration (NCUA) backs credit union deposits of up to $250,000. The same coverage applies to bank deposits, but it’s provided by the FDIC.
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Credit unions generally keep their loans in house — in contrast to banks, who routinely sell theirs.
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Credit unions generally offer more competitive mortgage rates compared to traditional banks. In the second quarter of 2024, the average rate on a 30-year fixed-rate mortgage offered by credit unions was 6.97 compared to 7.08 for traditional banks, according to NCUA data.
Additional reporting by Taylor Freitas
