The decision to apply for a mortgage may leave you wondering whether a credit union or a bank is the best lending resource for you. You may ask yourself: credit union vs bank, where should I go? The answer to this question can be discovered with more of an understanding between the differences and similarities of a credit union vs bank.
Both financial institutions offer overlapping opportunities, but the differences between a credit union vs bank may sway potential home buyers in one direction or the other when it comes to applying for a mortgage pre-approval. If you’re considering purchasing a home, reviewing these differences is worth your time and consideration.
Credit Union vs Bank: Is There a Difference?
If you were to compare the physical layout of a credit union vs bank, they may look quite similar and both typically offer comparable products and services to assist homebuyers in making sound financial decisions.
But an underlying fact about the organizations creates a significant difference. Banks are generally privately owned corporations designed to provide stockholders with a substantial return on their investment. These for-profit organizations typically encourage their employees, the ones serving you, to strive for sales goals to ensure they’re making enough money for the stockholders of the bank.
By contrast, credit unions are not-for-profit organizations that are owned by their members. Typically, the minimum balance requirement for your savings account represents your membership share in the credit union. As a member, you can attend the credit union’s Annual Meeting where updates are shared, and members are able to vote on items pertaining to the future of the credit union and its board of directors. As a member, you have a vote and a say in the organization’s direction.
The credit union goal of serving their members’ financial needs often results in mortgage products with competitive interest rates, reduced processing fees, and excellent service. They are there to help you find the product that best fits your budget and needs, versus selling a product to meet a sales goal.
Credit Union vs Bank: What Mortgage Options Are Available
The credit union vs bank mortgage lending programs may seem comparable on the surface. Both financial institutions facilitate government-backed mortgage products as well as privately secured options. Qualified borrowers can expect to see the following home loan options at both banks and credit unions.
- Conventional Loans: These private-supported mortgage products may be good choices for home buyers with solid credit scores and cash on hand. A Conventional Loan can be cost-effective for those with a 20 percent down payment and who meet the required debt-to-income ratios. These options are typically available in both fixed and adjustable-rate mortgages.
- FHA Loans: The Federal Housing Administration (FHA) insures mortgages for people who may not necessarily possess perfect credit scores or 20 percent down payments. Members may qualify for an FHA Loan with a minimum credit score of 500; however, to take advantage of the 3.5% down-payment option, you’ll need a score of 580 or higher.
- USDA Loans: The U.S. Department of Agriculture supports lending opportunities for those who live in primarily rural areas. Typically serving low-income families, a USDA Loan sets maximum annual thresholds and offers flexible qualifying guidelines.
- VA Loans: The U.S. Department of Veterans Affairs (VA) backs home loans for active-duty military personnel, veterans, and surviving spouses. A VA Loan is a type of mortgage offered to thank those who served by offering zero-down mortgage opportunities, low interest, and relatively simple qualification requirements.
- First Time Home Buyer Programs: Some financial institutions offer First Time Home Buyer Programs helping new home buyers by offering more flexible terms and down payment requirements.
- Construction Loans: Having a place to build your house may be part of your home-buying journey. Construction Loans allow members to purchase the land they need so they can build the home of their dreams.
When shopping for a home loan, the difference between a fixed-rate and adjustable-rate mortgage (ARM) is important. Fixed-rate mortgages establish a monthly payment that does not change over the life of the loan. By contrast, an ARM may shift higher or lower depending on the current state of the market. It’s essential to discuss the best mortgage option for your needs with a member of Peach State’s Mortgage Services team.
Mortgage Rates & Fees
When working through mortgage rate and fee structures, it’s important to understand that neither a bank nor credit union can offer a zero-interest mortgage or waive all the fees. Banks do have to provide their stockholders with a return on their investment, while credit unions reinvest any returns into offering better products/services and more affordable lending opportunities for their members. Choosing to work with a credit union like Peach State is akin to reinvesting in yourself and the community.
As you compare mortgage programs and mortgage interest rates, be sure to look into the mortgage fees associated with applying for a mortgage such as the origination fee, document preparation fee, appraisal fee, credit report fee, title fees, and other closing costs. Those factors in the credit union vs bank decision can add up fast.
Applying for a Mortgage at a Georgia or South Carolina Credit Union
As a financial cooperative, Peach State helps families achieve their dream of owning a home in Georgia or South Carolina by offering a variety of affordable mortgage options. Peach State reinvests the modest interest rates and fees into strengthening our ability to better serve our membership. We reinvest in the local Georgia and South Carolina communities that we serve and call home. If you’re considering buying a home, get pre-approved for your mortgage with Peach State today!
Credit union vs bank is one of the many questions to consider when searching for an affordable mortgage and home. For more home buying tips, download our "How Much House Can I Afford in Georgia or South Carolina?" guide.