You have your mind set on your dream home, but have you given any thought yet to who your lender will be? Commercial banks and online mortgage lenders are not the only organizations that can issue mortgages. Credit unions are also a valuable option that might even save you some money. Keep reading to learn how.
Any time you take out a mortgage, there are costs involved, no matter where you get the mortgage. Whoever provides the mortgage to you needs to make money. Closing costs are, for example, usually 3% to 5% of the loan amount. This varies quite a bit depending upon the state and the lender. Also, if you put down less than 20%, you will usually need to get mortgage insurance. Mortgage insurance protects the lender against default. This insurance can cost you at least $100 to $200 per month.
But in some cases, you can save on things such as closing costs and mortgage insurance by using a credit union for your mortgage loan.
Overview of Credit Unions
Credit unions are not for profit, member owned cooperatives that have been increasing their presence in the mortgage market. In 2015, credit unions had 11% of the mortgage market, which was an increase from 7% two years before.
Many experts believe that more Americans are turning to credit unions for their mortgages to save money in various ways. Here are some of the ways a credit union could help you.
You May Save Money
One of the best things about credit unions is they are nonprofit, so they tend to have lower fees on their mortgages. Lower fees and rates at credit unions help the borrower. The credit union usually passes their savings onto the members. At a bank, their sole purpose is usually to make revenue for their investors.
You may find that your credit union is able to charge lower closing costs on your mortgage because they are charged less themselves on some of the costs of finalizing the mortgage. This can really help you to save money when you come to the closing table.
There also are some credit unions that have mortgages with less than a 20% down payment that do not have mortgage insurance. Typically, the credit union will pay the mortgage insurance and charge you a slightly higher rate. But this higher rate will usually be less than what a conventional lender would charge.
Not a Mere Number
When you get a mortgage from a bank or other mortgage lender, you usually are just a number. But with a credit union, it is more likely you will know your servicer. Also, with a regular mortgage, it is very common for the company that collects your mortgage payments to change many times over the life of the loan. This does not usually happen with a credit union.
Staying with the same mortgage servicer can help you avoid late fees that can happen when there is confusion about where to send your loan payments.
Low Credit Scores- Not so Fast
Credit unions can be a good choice for the person but usually they are seeking a borrower that has high credit scores. Gone are the days that credit unions take risks on a lower or middle-income loan to a person with mediocre credit than many other originators. Credit unions do sometimes offer special mortgage programs for first time buyers.
For instance, there is a credit union in Raleigh NC that at one time offered 100% financing for up to $400,000 with no private mortgage insurance. That is not a typical loan that is offered at traditional lenders after the last market crash.
Last, getting into a credit union is not as difficult as you may believe. There are some credit unions that are for specific alumni and other types of groups that you must belong to. But there are other credit unions in large cities that anyone can belong to. In large part, they operate like a regular bank, but you may find that they charge lower fees and have better mortgage programs with lower interest rates than traditional lenders.