Could a Credit Union Help You Buy a Home?
Having trouble getting a loan from a bank? Or perhaps you are a potential home buyer with non-traditional income (freelance, small business owner, and new job income are among the most common). Even if you’re a fairly “normal” new buyer, you want to know all your options when it comes to a home mortgage. Perhaps you should visit your local credit union to discuss your home buying goals to find out if this kind of organization can offer you help your bank can’t.
Key Differences Between Banks and Credit Unions
Though federally insured by the FDIC, a bank is really a private enterprise. Customers aren’t owners; they don’t vote on bank business. This is in direct contrast to a credit union’s mission and governing style. Credit unions are at their essence local institutions, designed to serve a particular community (this could translate to employment type, so a credit union to serve firefighters, for example; or could mean a geographical neighborhood, town or city). Members of credit unions are part-owners as well, and generally have some say in the union’s decisions.
- Profit vs. Not for Profit
A traditional bank’s primary goal is to make money for its owners: investors and stock holders. But almost all American credit unions are not-for-profit organizations, which means that any profits made through members’ investments goes back to the members (once the union’s overhead expenses are met).
- Interest and Fees
Again, since a bank works to make a profit, the fees imposed upon customers are part of that goal. Credit unions don’t generally charge fees for banking transactions: ATM withdrawals, cashier’s checks, traveler’s checks, these are usually free of charge. The not-for profit designation also explains the lower interest credit unions can sometimes offer on mortgages, and higher interest they can offer on savings and checking accounts.
When banks turn down qualified applicants, sometimes these applicants take their business to credit unions. US News recently ran an article comparing the loan process at banks to that of credit unions and advises:
If you’ve been denied for a loan from a corporate bank, consider applying for a loan through a credit union. Many credit unions have less stringent loan eligibility requirements and may be willing to work with you when you have a low credit score. They can also make exceptions for unique circumstances, such as being self-employed or having a bankruptcy on your record.
One Local Example
In Portland, OR, Advantis Credit Union offers up to 2% interest on certain accounts, and is making efforts to fund small business and first-time buyers in the local area. This of course doesn’t mean anyone, no matter the credit score, income, or personal savings, can qualify; but it does mean that some applicants, rejected by banks, will win approval from their credit unions in particular circumstances.
“We can’t fund loans for unqualified people, no, not even if they’re long time members,” explains one Advantis loan specialist. “However, we have approved three loans this year for couples who were denied loans by traditional banks. Our standards aren’t easier, but—perhaps because we have more time and fewer people to serve overall-- we are able to find more nontraditional ways to meet lender requirements and get qualified applicant loans funded.”
Establish a Relationship
Long-time membership can be key to making the most of credit union advantages though, from securing the loan in the first place to scoring lower-interest payments. If you join a credit union tomorrow, you probably won’t enjoy the full range of its support on that same day.
Where to Go
Credit unions, again being local by definition, don’t offer ubiquitous branches all over the country. That can mean less easy access to your money. And even though most credit unions don’t charge ATM fees, so you can access your money most anywhere without the expected, annoying penalty, you’ll still need to visit an actual branch occasionally. Finding a credit union close by where you live would be the most convenient route. If that one also happens to offer the best interest rates and services, consider it kismet.
You might also look into credit unions serving your kind of employment. Firefighters, teachers, police officers, and several other professions and trades have credit unions devoted to their needs.
Your Money, Your Choice
The upshot then: deciding whether to put your money, and your home loan, in the hands of a bank or a credit-union is ideally a long-term plan decision, part of the process of getting ready to buy a home. But, if you’ve been denied a loan or you’re worried that your non-traditional income won’t pass traditional bank scrutiny, drop in or call a few local credit unions. Talk to the mortgage professionals there and find out if their more community-minded service might be just the kind of support you need. You should also talk to your local Realtor (R) who can direct you to experienced mortgage brokers and has personal knowlegde about programs to assist first-time buyers in the area, including those offered at both banks and credit unions. This advice may even help you buy a home even if you don't have 20% down. As ZipRealty agent John Goetschius puts it, "Talk to your ZipRealty Realtor for a recommendation of an experienced mortgage loan officer. You may be surprised to learn that you can buy more home with less cash, especially if you are a first time homebuyer!"
- Home Mortgages 101: First-time Buyers Guide to the Loan Process of 2012
- Advice for "Risky" Loan Applicants
- Buyers: Preapproved or Prequalified? We Tell You Which One You Really Need