Are Banks Taking All the Credit? Why It Might Be Worth Exploring What Credit Unions Have to Offer

Team Simplist
Simplist Mortgage: Are Banks Taking All the Credit?
Feb 14, 2020

If you are reading this, you are probably already thinking about where to find the best mortgage deal for you. Perhaps there are a few obvious names that spring to mind. But are you sure you have left no stone unturned? If, for example, you have thus far only considered major bank lenders, chances are you might not even have weighed one major avenue of mortgage lending open to you: credit unions.

Increasingly ubiquitous but often misunderstood, credit unions have seen significant growth in the last five years, expanding at a swifter pace than small and large banks alike. In the United States, as of the second quarter of 2019, there are now more than 5,300 credit unions serving some 118.3 million customers. Their presence in the mortgage-lending market has equally blossomed: in 2018, they accounted for 9.4% of all mortgage originations in the United States. And, since the 1998 Credit Union Membership Access Act introduced less stringent credit union membership rules, bringing with it enhanced safety and soundness practices, many of these non-profit cooperatives have also been more accessible to the general public. Essentially, if you’re reading this, you can probably become a member!

So, what exactly are credit unions, and how might they help you on your mortgage-finding journey? Below is the lowdown to help you decide if a credit union mortgage could be right for you:

What Are Credit Unions?

While we don’t have proof that the Founding Fathers would support credit unions’ missions, there’s something quite “We the People” about how they operate. These financial cooperatives range in scope from small, volunteer-led organizations to much larger operations with members all over the country. Some are established for employees and eligible family members by large corporations and entities. Whatever their size, however, all credit unions operate according to the same basic model: members pool their money in order to provide various financial products and services to each other. In this way, credit unions are similar to traditional banks that offer diverse financial products to their customers. Unlike banks, though, they are tax-exempt, not-for-profit institutions that pay dividends to their members rather than paying declared earnings to stockholders.

Additionally, credit unions often specialize in non-securitized loans (i.e., loans not bundled into securities and sold). This means their mortgages don’t have to conform to the same standards imposed by government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac, which can make them a good fit for otherwise creditworthy borrowers who don’t quite fit the traditional ‘mold’ (entrepreneurs, freelancers, real estate investors and the like). That doesn’t mean that they’re riskier, though – since they tend to keep these loans on their balance sheet, credit unions have plenty of incentive to ensure that borrowers are likely to repay their loans!

The fact that credit unions are unlikely to sell on mortgages to other third-party providers can save customer-members considerable inconvenience and confusion (not to mention potential late fees!) caused by transfer of payments to other companies and locations. It also means that customers could potentially be dealing with the same servicer for the mortgage duration.

How Might You Benefit from Using a Credit Union for Your Mortgage?

  • Membership: The community spirit shared by a group with related interests, work or geography engenders a sense of belonging, drawing together and supporting the needs of similar people. As a member of a credit union, you are not just a customer but also a co-owner who gets to vote on who runs the union and how – your membership gives you a say in all credit union decisions. Being owned by as well as serving their customers means that credit unions can benefit both communities and individuals. For example, profits from the checking and saving accounts of some members often end up advancing other members financially by helping them to get mortgages or loans.
  • Customer Service: Do you thrive on longer-term, established relationships? Credit unions might well be for you: with more locally set customer service rules and smaller branches than traditional banks, credit union services are generally more personalized and individualized. This means you could obtain bespoke financial advice while still benefiting from the high-tech, high-speed experience of the megabanks.
  • Flexibility: Equally, the smaller-scale, member-driven philosophy of credit unions can offer more options for people whose credit profile is more complex. In fact, credit unions are generally more likely to offer some leeway when it comes to the size of your down payment – but you should still try to squirrel away as much as you can, regardless!
  • Savings: The non-profit status of credit unions can result in discounted mortgage and loan rates (meaning lower interest/APR), as credit unions can often afford to simply break even. Similarly, you could potentially enjoy further savings through lower and fewer fees on things such as electronic transactions and withdrawals.
  • Security: Credit unions are chartered by either the federal or a state government; all federal credit unions and 95% of state-chartered ones have government-backed “share” (or “deposit”) insurance to help keep your money safe.

What Else?

In order to enjoy credit union benefits, you must become a member, the requirements for which vary from institution to institution. However, as mentioned above, many credit unions have relaxed their membership requirements, which means you get access to various perks without too much upfront hassle. Fortunately, you don’t have to spend time hunting around for your perfect mortgage match – Simplist makes it easy to determine eligibility, offering one easy application that seeks to pair you with the best lenders for your profile and your borrowing needs.

At Simplist, we know that there are many factors to take into account when calculating the personal and financial value of each and every lending option. But relax! With our expert mortgage advisers by your side, you can confidently navigate even the more surprising twists and turns in the path towards your perfect mortgage solution.

View all articles