You are ready to apply for a mortgage, where do you begin? As you start your search, you will see there are banks, mortgage brokers, and now credit unions. Most people assume banks and mortgage broker are safe, but what about the credit union. Is it a good idea to use them for a mortgage or are they best for checking and savings accounts? The answer depends on your situation and the methods of the specific company you use. However, there can be many benefits of using this entity for your mortgage.
What is a Credit Union?
If you are not familiar, a credit union is a not-for-profit, member-owned company. This may sound promising because not-for-profit sounds like it means lower rates and/or fees. Many credit unions are only for specific groups or employers. Others are open to those living in a specific area. If this type of membership entices you, ask about the availability of them in any groups you belong to as well as your community.
The Benefits of Using a Credit Union
There are many benefits you may realize by using a credit union for your mortgage needs. Here are a few of them:
- Personalized service – Since you must belong to the union in order to use their services, the clientele list is smaller. This means you are not just a number as you would be with a larger mortgage company. The personnel likely know you by name and what will suit you best. In addition, you know who will hold onto your loan after you close on it. Closing with a big mortgage company could mean your loan gets sold multiple times to other servicers. This leaves you in the dark regarding what type of customer service you will receive down the road.
- Lower costs – Some credit unions, but not all, charge lower fees and/or interest rates. Because they are not-for-profit, they do not have profit margins to reach. However, keep in mind they still have to cover their operating costs. You may find they do not charge origination fees or discount fees, which can save you a significant amount of money, though.
- Lenient guidelines – This may not be the case across the board, but some credit unions have more lenient guidelines. They look at mortgage applications like a human, rather than a computer. They understand hiccups in your financial life and can recognize when you have bounced back. They do not often have hard and fast rules regarding how long a bankruptcy must be discharged or have a minimum credit score requirement. Instead, they look at the big picture.
Disadvantages of Using a Credit Union
There are some disadvantages of using a credit union, just as there are disadvantages of using a bank.
- Stricter guidelines – Just as some credit unions have looser guidelines, others tend to be a little conservative. Not all unions have come up with unique programs to meet the needs of their members. Those more conscientious about their earnings and keeping a roof over their heads tend to restrict the loans they provide.
- Fewer technology options – If you prefer to make your payments online or have an automatic withdrawal of your mortgage payment, you may be disappointed with a credit union. They often require payments the “old school” way which means writing a check or paying the bill in person.
- You must qualify as a member – Not only do you have to qualify for the mortgage, but you must qualify as a member. Today this is a little easier than in the past, but make sure you read the fine print before you decide joining a credit union is the right choice for you.
- Constant selling – Credit unions offer a variety of other products, which they will constantly try to sell you as a mortgage customer. If you are not the type that likes to be given other options every time you talk to the customer service agents, it might not be the right choice for you.
Explore all of Your Options
The best way to decide which mortgage is right for you is to get quotes from several lenders. Comparing the options from a bank, broker, and credit union can give you an idea of who offers the best deal. Do not focus strictly on the interest rate, though, look at the big picture. Compare the loan amount, origination fees, discount points, and closing costs. You should also look at the APR. This shows you what the loan costs over the entire life. This way you can make an informed decision regarding which loan is right for you.
No matter which loan you choose, make sure you read the fine print. Brokers, banks, and credit unions each have their own restrictions and penalties. You may not have a prepayment penalty on your mortgage, but there could be other terms that could harm you if you do not know them ahead of time. No matter who you choose, make sure you ask a lot of questions. If you do not understand something, do not be afraid to ask. This is an investment you will likely have for the next 15 to 30 years – make sure you make the most of it.
No one can tell you whether a credit union mortgage is right or wrong for you. Only you know your personal situation. If you prefer more personalized service and have a union you belong to already, it could be a great idea. However, if you are not already a member of one, it might be harder to find one you can join and use. Taking out a mortgage as a new member may not be the best idea either. This does not give you the time to determine what their service is like and if you can work with them. Finding out with an investment account or smaller loan is a better choice. This way you minimize your loss and headaches. Working with a mortgage takes a lot of work and understanding. Knowing that you trust and can work with the lender is an important part of the process.