Why Can You Get a Better Mortgage at a Credit Union?
Credit unions offer members the same kind of products that people can get from banks. However, rates on mortgages and other loans are often lower at credit unions than banks. Banks are for-profit corporations while credit unions are not-for-profit entities, and consequently mortgage rates are usually lower at credit unions.
Other People Are Reading
-
Rates
-
Credit unions and banks both finance mortgages with borrowed money. Institutions can borrow from the federal government, from other financial institutions or from depositors. Credit unions price mortgages so that the interest paid by the mortgage borrower covers the credit union's own borrowing costs and its operational expenses. Banks price mortgages to cover these same costs but also have to generate profits, which means bank mortgage rates are usually higher than credit union rates.
Membership
-
Anyone can apply for a mortgage from a bank, and although credit union mortgage rates are attractive, many people are ineligible to apply for these loans. Credit unions have membership rules, and typically credit unions are tied to companies or municipalities. You can only take out a mortgage if you live in the municipality served by the credit union or work for the company linked to the credit union. The exact terms of credit union memberships vary, but some credit unions have very strict membership requirements, which means relatively few people have access to low-rate mortgages.
-
Credit Score
-
When you borrow money, the lender has to contend with the risk that you will default on the loan. Lenders check your credit score to examine your past credit history, and if you have a very low credit score, a lender can refuse to write a new mortgage for you. Generally, you need a credit score of 620 or better to get a mortgage from a bank, but credit unions usually require borrowers to have credit scores of 700 or better. Borrowers with high scores are seen as low-risk borrowers and tend to get better interest rates. Therefore, rates, for those who do qualify, are on average low when compared with banks because only people with high scores can qualify for these loans.
Considerations
-
Major banks usually have branch locations in multiple states, and federal laws prevent banks from discriminating against borrowers. Consequently, to prevent inconsistent lending practices, most banks have inflexible underwriting guidelines and rigid loan products. Credit unions are locally operated, and since credit unions have fewer customers, underwriting guidelines are more flexible than at banks. Credit unions can tailor mortgages and other loans to the needs of members, and as a result, some credit unions offer unconventional mortgage terms that you cannot find at major banks.
-
