Since the financial crisis took hold in 2008, many Americans have been shifting their business away from big banks and towards credit unions. Unhappy with the impersonal, unfriendly, and profiteering ways of commercial banks, the cooperative, non-profit nature of credit unions holds a certain appeal to some customers. Plus, credit unions are often able to offer loans and other financial products at cheaper rates than their corporate counterparts. For many of us, credit unions are a win-win.
When it comes to choosing a mortgage – one of the most important financial choices we’ll make in our lifetimes – many people wonder if working with a credit union will offer significant advantages over a big bank. The answer to this question really depends on your personal financial situation and the qualities you’re looking for in a mortgage provider.
In order to decide if a credit union is for you, ask yourself the following three questions:
How’s My Credit?
It may seem somewhat counterintuitive, but if your credit is on the lower end – think 720 or below – obtaining your mortgage from a credit union may not be your best bet. This is because credit unions are financial cooperatives, so most will not extend home loans to people with less-than-perfect credit because they need to keep the interest of all credit union members in mind. Taking a risk on someone with poor credit would represent too much of a gamble. If your credit isn’t ideal, you may want to look into financing your home purchase through the Federal Housing Administration (FHA), which should be easier than getting a mortgage through a big bank or a credit union.
Am I Looking For An “Exotic” Mortgage?
Mortgages with non-traditional terms – such as low money down and so-called “piggyback” loans – are starting to reemerge on the financial scene, but most of these are not available through credit unions. Credit unions tend to be more conservative with the types of financial products they offer, and, again, aren’t willing to huge risks with who they lend to and how the loan is configured. If you need a loan that offers features that are anything but plain vanilla, a big bank will probably be best for you.
What Am I Able To Afford In Interest And Fees?
One huge advantage that credit unions have over big banks is that they’re generally able to offer mortgages that carry lower fees (and sometimes lower interest rates) than those provided by big banks. Remember, the purpose of a corporate bank is to make money, and one way they accomplish this is by charging fees. Credit unions aren’t seeking to make a profit on your loan, so they will typically charge significantly less to put your mortgage in place. If you’re not able to avoid the thousands of dollars in mortgage-related fees most big banks require you to cough up, a credit union is probably for you.
Credit unions offer some serious advantages over commercial banks, but it’s important to look at your whole financial situation before committing to a mortgage. As with many purchases, shopping around is the key to finding the best deal!