In 2021, buying a house felt like war. In 2022, it’s hell. Though the madness of last year—when the pandemic sales boom coupled with record low mortgage rates led to massive price spikes and cutthroat competition among buyers—has eased somewhat, inventory is still historically low and prices are still elevated (if dropping slightly in some markets). As a buyer, that sounds like good news, except the reason the market is cooling also sucks: Interest rates are climbing at a nigh-unprecedented pace. Now more than ever, getting a good rate can spell the difference between owning a home and toughing it out in an apartment for another year.
Most people default to going to their bank for a mortgage because it’s the easiest choice, and banks are happy to loan you the money and have a whole staff of people dedicated to figuring out how to give it to you. But that doesn’t mean they’re the best option. Your lender is going to make a lot of money off of you, so you should treat getting a mortgage like buying a car, and shop around. And if you’re shopping for a mortgage, you definitely shouldn’t sleep on credit unions.
What’s a credit union?
A credit union is a financial cooperative owned by its members. There are very large credit unions owned and operated by thousands of people or even corporations, and there are much smaller credit unions created by an organization or group of individuals. Credit unions typically offer many of the same services as banks, including savings and checking accounts, ATM cards and locations, auto loans…and mortgages.
Something people sometimes lose sight of is the fact that most banks are for-profit entities, which means it is in their best interest to make sure your mortgage makes them money. A credit union, on the other hand, is a non-profit financial cooperative that gives profits back to its members via (generally) higher interest rates on savings and lower fee structures. That means that a credit union might be a better option for any financial need—including a home mortgage—because they are more concerned with your deal not losing them money, a crucial difference.
Pros of credit union mortgages
There are a lot of solid reasons to consider a credit union for your home loan:
- Easier approvals. Because credit unions are focused on serving the needs of their members over making a profit, you might find it easier to get approval for a mortgage at one as opposed to a bank. This is especially true for folks who don’t have a long credit history, or whose credit history is less than ideal. But note that this depends on the specific credit union—some will have a lower tolerance for risk.
- Better rates. In general, credit unions offer lower rates on their mortgages. Sometimes the difference can be as much as several percentage points. This isn’t a guarantee—you should still shop around, and a traditional retail bank may offer a better deal. But by and large you can probably save a bit, or a bundle, through a credit union.
- Fewer fees. Credit unions are designed to serve the interests of their members and aren’t trying to scalp you for every last bit of profit, so they typically have fewer and lower fees.
- A faster closing. Anyone who has gotten a mortgage through a bank knows that saying the process moves glacially is a vast understatement. People selling a home love to hear about fast closings because they’re rather not pay an extra month on their own mortgage if they can avoid it. Credit unions tend to move much more quickly, in part because they are smaller, more nimble organizations, and in part because of their member-focused philosophy.
- Friendlier service. Banks can sometimes behave as if you’re trying to steal from them when you apply for a loan. Credit unions are smaller and more personal because they’re cooperatively owned, which often translates to a more pleasant experience when taking on a mortgage.
Cons of credit union mortgages
There are a lot of positives in terms of using a credit union for your home mortgage, but that doesn’t mean they’re always the right choice. There are some downsides:
- Membership requirements. Unlike a retail bank, where just about anyone can apply for a mortgage, at a credit union you have to be a member. And most credit unions have requirements you have to meet before you can join. While there are some credit unions with open memberships (meaning anyone can join), most are linked to a specific location, employer, labor union, or other organization you must be a member of to join. And you have to apply for membership—meaning they can deny your application. That being said, chances are you can find a credit union where you meet the requirements—aside from any guilds or unions you might be a member of, many alumni associations and community organizations have an associated credit union.
- Less tech-savvy. Banks tend to be on the cutting edge of financial tech, while credit unions (being smaller and community-run) tend to lag behind. If you’re the sort who runs their finances from their phone, you might have better luck with a bank.
- Fewer resources. Credit unions will also probably offer fewer branches where you can go, fewer ATMs to access funds, and less flexibility in terms of how their loans are structured. If you just need a mortgage at the best rate possible, this might not be an issue. But since you will have to join the credit union and fund and maintain some sort of account there, the potential lack of resources is something to consider.
When you take on a mortgage you’re probably taking on the biggest debt of your life, so it behooves you to look at every possible option. Credit unions may not be the best choice for everyone, but you owe it to yourself to investigate before you sign your name to the contract (about 40 times).
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