Key takeaways

  • Credit unions may offer lower mortgage rates and fees, but you may have less access to in-person branches and ATMs.
  • Bigger banks might offer a wider variety of loan products and don’t have membership criteria to work with them.
  • It may be easier to get a mortgage with a credit union you already have a membership with.

You have a lot of options on where to get a mortgage, and it’s not just big or regional bank lenders. Credit unions are increasing their stake in the mortgage market, as well. Not only do credit unions offer competitive loan terms and a more personalized customer service experience, but they also feature more flexible lending criteria in some instances.

Still, a traditional bank could be a better fit, depending on your financial situation. If you’re trying to decide between a credit union or a bank for your mortgage, consider the pros and cons.

Credit unions vs. bank mortgages: Similarities and differences

Bank loans are a popular choice, but credit union mortgages certainly have their appeal, too. These lenders share similarities but have distinct differences that can impact your choice.

Similarities between credit unions and bank mortgages

Credit unions and banks share many similarities, such as:

  • Application process: With many banks and credit unions, you can apply for a mortgage online, over the phone or in person at a branch.
  • Mortgage types: Many banks and credit unions offer a variety of mortgage loans, such as fixed and adjustable-rate mortgages, conventional mortgages and FHA loans.
  • Other financial products and services: Credit unions and banks can also be a one-stop shop for your finances, offering auto loans, savings and checking accounts, personal loans and more.

Differences between credit unions and bank mortgages

While on the surface, credit unions and banks look similar, there are important differences, including:

  • Profitability: The biggest difference between credit unions and banks is that typically, credit unions are non-profits, whereas banks are for-profit.
  • Membership: Banks are open to the public for gaining new customers, but credit unions can be more choosy with who joins. For example, you may need to reside in a specific area or work in a specific profession to join some credit unions.
  • Loan programs: National banks may offer a wider array of loan types than credit unions.
  • Retaining loans: Credit unions often hold onto the mortgage they originate (also known as portfolio loans), whereas banks often sell the mortgages they originate on the secondary mortgage market.

Pros and cons of getting a credit union mortgage

Getting a credit union mortgage comes with benefits and drawbacks to weigh before making your decision.

Pros of getting a credit union mortgage

  • Fewer fees: Credit unions pass savings onto members, resulting in fewer fees. This is different from banks, whose sole purpose usually involves generating revenue for investors, says Bob Dorsa, former president of the American Credit Union Mortgage Association in Las Vegas. “(A credit union’s) ‘stockholders,’ per se, are the members, the customers.”
  • Lower rates: If you’re looking to get the best mortgage rate possible, there’s a good chance you’ll find it at a credit union. “On average, credit unions offer lower rates on mortgage loans,” says Curt Long, chief economist and vice president of Research for the National Association of Federally-Insured Credit Unions (NAFCU).
  • Better personalization and service: Credit unions are known for their superior service, says Long. For example, there’s a greater chance that you’ll know your servicer. “Credit unions retain a higher share of the loans they originate in their portfolio than other lenders, where it is more common to sell the loan and its servicing to a third party,” says Long. That leads to borrowers being more likely to maintain the relationship with the lender.
  • Easier approval: Potential homebuyers who don’t have a traditional profile, such as an excellent credit history, can benefit from getting a credit union home loan, says Long. “(Credit unions) are more likely to make lower- and middle-income loans than other originators.”

Cons of getting a credit union mortgage

  • Membership requirements: “Many credit unions have membership requirements based on their target market,” says Rich Arzaga, founder and CEO of The Real Estate Whisperer Financial Planning and Education in Monument, Colorado. If you don’t meet the requirements, you won’t be able to get a mortgage with that specific credit union.
  • Lagging Technology: If you’re looking for a mortgage lender with a first-rate online experience or intuitive technology, you may want to consider a bank or online institution instead of a credit union. “For those who prefer to use technology for tracking their finances, credit union technology lags,” says Arzaga.
  • Limited branch and ATM access: In general, most credit unions have a smaller geographical imprint than national banks. This can translate to less access to branches and ATMs. Though some credit unions participate in national ATM networks or offer to reimburse ATM fees up to a certain amount.
  • Potentially higher cost: While they often provide great rates for their members, sometimes credit unions simply can’t compete with larger banks. “For those who are inclined to only shop at credit unions, the biggest downside is that banks will periodically offer sharply lower mortgage rates,” says Arzaga.

Credit unions vs. bank mortgages: How to choose the right lender

Banks make up a large portion of the mortgage market, but don’t overlook credit unions when shopping for a lender. These member-owned institutions provide a number of benefits, such as lower rates, fewer fees and exceptional customer service.

“Credit union loans are a resource for those who want to avoid supporting banks (this is a strong preference for some), prefer to have a personalized experience and who seek preferred rates,” says Arzaga.

However, a bank could be a better fit if you aren’t a member of a credit union or prefer a financial institution that leverages technology to provide a more seamless lending and loan management experience.

Make sure to shop around with at least three mortgage lenders and choose one that best fits your needs and financial situation.

Credit Union vs. bank mortgages FAQ

  • Both federally-insured credit unions and banks are safe places to keep your money. The NCUA backs credit union deposits of up to $250,000. The same coverage applies to bank deposits, but it’s provided by the FDIC.
  • Credit unions generally keep their loans in house. However, it’s not uncommon for banks to sell mortgages to investors to boost liquidity and expand this line of business.
  • Yes, you can get a home equity loan at some credit unions. This loan allows you to pull funds from your home equity and receive them in a lump sum. Many credit unions also offer home equity lines of credit (HELOCs) that give you access to home equity on an as-needed basis. Both offer competitive terms and are worth considering if you’re seeking a flexible funding solution.