Shopping for a mortgage loan is a great way to save on interest with a better loan rate. In addition to banks and mortgage brokers, home buyers may also want to look to mortgage lenders that may be in their neighborhood but can be overlooked: Credit unions.
Along with sometimes offering better mortgage interest rates, credit unions offer other benefits that other lenders may not do so well, such as having low or fewer fees, knowing the local market better and being able to make loans on unique properties.
1 – Nonprofit model means savings for members
Unlike banks, which are designed to make profits for investors, credit unions are not-for-profits that receive a federal tax exemption with their mission to serve consumers. Earnings are put back into the credit union to give members higher savings returns, lower loan rates and lower fees.
Credit unions are set up to serve a common area of membership, such as by geography, employee groups or membership in an organization. Members can be on a volunteer board of directors for the credit union to set rates, fees and other policies.
Finding a credit union near you that you can join shouldn’t be difficult. There are many types of credit unions, and an online credit union finder should help you find one near you.
Maine-based University Credit Union requires members to have some sort of affiliation with the University of Maine, says April Gleason, vice president of lending for the statewide credit union that has nine branches and 27,000 members.
“It may sound like a barrier, but there’s a credit union for everyone,” Gleason says.
2 - Lower fees, but watch interest rates
Credit unions are often very competitive on car loan rates, but can be less so on home loans. This is because car loans are for a much shorter time and thus have less risk than a 30-year mortgage, Gleason says.
The savings come in other areas, such as fewer and lower fees through a credit union mortgage. With their goal of passing on their savings to members, credit unions are often very competitive on lending fees.
University Credit Union in Maine, for example, charges $699 in home loan fees, versus $1,500 or more that banks charge in origination fees and other costs in processing the loan, Gleason says. Mortgage brokers can charge $3,000 to $8,000 in fees, she says.
“Every other fee that you would see on our loan documents are third-party fees” that the credit union is required to have, she says.
When shopping for a home loan, consumers should ask what interest rate and fees are charged so that they’re comparing apples to apples.
It’s also important to know that the people you work with at credit unions are mortgage consultants an not fiduciaries, says Brett Anderson, a certified financial planner and president of St. Croix Advisors in Hudson, Wisconsin. That means they may not offer the best rates or fees and aren’t obligated to do so.
3 - Less likely to sell your loan
Credit unions are less likely to sell home loans to other lenders, Gleason says, partly because they want to keep a long-term relationship with the borrower.
Home loans are often sold to different lenders or servicers and the move shouldn’t be a problem for most homeowners.
But it can be inconvenient and confusing. Keeping the same loan servicer can save borrowers from late fees if there’s confusion over where to send payments. Escrow problems can also pop up during a transfer.
4 - Knowing the local market
Some homes can be harder to get a loan for than others. Lenders that know the local market, such as credit unions, can be more likely to approve a loan for a unique property that a bigger lender may not know as much about.
In Maine, unfinished Cape Cod-style houses that have an unfinished upstairs are common, Gleason says. Traditional banks may not want to fund such homes, which are cheaper than finished Cape Cods but the new owners may spend money later to finish the work themselves, she says.
“We look outside the box quite a bit on a daily basis,” she says.
5 - Long-term relationships
In part to get their other banking business and as a way to follow a mission of serving members, credit unions can offer more personal service.
Gleason tells the story of a home borrower where the home they were buying had a sewer backup during Christmas week, just before the loan was about to close. Officials at the credit union worked with them to keep the loan on track until the sewer problem was resolved so they could feel safe buying the home, she says.
Such personal service is also common at community banks, says Ray Duran, regional sales manager at Quontic Bank in Coral Gables, Fla. While credit unions specialize in everything, Quontic Bank specializes in mortgages and helps customers face-fo-face or over the phone, says Duran, adding that working with other lenders can be frustrating if you can’t get anyone on the phone or are having problems online with the lender.