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Credit Unions vs. Banks for Mortgages

Last updated 03/19/2024 by

Benjamin Locke

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You can obtain a mortgage from a variety of financial institutions, including banks and credit unions. As credit unions are smaller and more community-based, their home loans could be easier to obtain and come with lower fees. In some cases, credit unions (and smaller banks) don’t have the capital to spend on cutting-edge technology, so their systems and processes can seem outdated.
Are you in the market for a mortgage? If so, you’ve likely noticed the overwhelming number of loan and mortgage advertisements, predominantly from big banks. To put it into perspective, Chase and Capital One alone spend nearly $6 billion on marketing, while the 30 credit unions that spend the most on marketing invested around $50 million on marketing combined. That doesn’t mean banks are always the better option.
As smaller community-based organizations, credit unions have unique characteristics that can make the mortgage process more personalized and cost-effective. In this article, we’ll explore the differences between credit unions and banks when it comes to mortgages and help you decide which option might be right for you. Let’s take a closer look.

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Credit unions vs. banks

Before we venture into why mortgages from credit unions differ from other lenders, let’s first define credit unions and banks.


A bank is an institution that accepts deposits (savings accounts, checking accounts), lends money, and deals with financial products. A bank is a for-profit enterprise that makes money from interest on loans and various other financial products.

Credit union

A credit union is also an institution that accepts deposits (savings account, checking account), lends money, and deals with financial products. But a credit union is a member-owned “non-profit financial cooperative.” Credit unions are under the umbrella of the National Credit Union Administration.
Herein lies the fundamental difference between credit unions and banks — their profit motive and structure. Banks want to make a profit to return to their shareholders, either public or private. A non-profit credit union has a different profit motive. Furthermore, as the ownership structure is a cooperative rather than a company, they tend to offer a smaller scope of products and sometimes better terms.
In the world of mortgages, this is also the case. “Generally speaking, credit unions typically offer more competitive rates than traditional banks because they are not-for-profit entities that serve their members rather than investors,” says Jon Sanborn of SD House Guys.

Credit union mortgages vs. bank mortgages

Credit union mortgages may differ from bank mortgages, but that doesn’t mean they are 100% superior all of the time. Depending on your individual situation, you might opt for one or the other. You might even mix and match if you want to build a property portfolio.
Here are the pros and cons of choosing a credit union for your mortgage.
  • Fewer fees
  • Easier application process and better chances of approval
  • More personalized service
  • Potentially lower interest rates
  • Membership requirements
  • Fewer locations and staff available
  • Fewer loan products available
  • Low-tech apps and communications

Advantages of a credit union vs. a bank mortgage

Fewer fees

There is nothing a lender and or underwriter likes to slap on a mortgage more than fees, particularly if they can get away with excessive ones. Remember, the difference a lender makes in the interest rate between the Fed rate and the lender’s markup is only one way they make a profit. The other way is by charging various fees such as an origination fee, late fees, penalties, etc. As a credit union is a not-for-profit, collectively owned enterprise, they try to save their members money rather than tack on extra fees to turn a profit.

Easier application process and approval

Some other advantages include an easier application process and better chances of approval. One reason for this is that their loan approval process is more personalized and not run by the various computer algorithms you find at banks. You might have an application rejected from a bank or alternative financial institution if you didn’t fill out one part of it properly. This is not as prevalent with credit unions as they are more willing to work with the borrower throughout the process.

Personalized service

Credit unions are a community-based phenomenon and thus may offer better service. This is the case both in mortgage origination as well as mortgage servicing. For instance, if you have an issue with a bank disbursement from escrow, you might have to be on hold with eight people before you know what’s going on. Shaun Martin of The Home Buying Company in Denver has seen this play out. “Credit unions typically have a much more personal approach to lending, which can be beneficial for borrowers who need extra guidance or help to understand the process,” he says. “However, banks can sometimes offer better terms depending on the borrower’s financial situation and credit score.”

Lower interest rates

This isn’t set in stone, as depending on the credit union and its product, you might get a lower rate from a bank or alternative financial institution. However, in general, mortgage interest rates for credit union mortgages tend to be lower. Again, this correlates to the profit motive. As credit unions are non-profit, they will pass savings on to their members rather than gouging you with as high an interest rate as they can fathom.

Disadvantages of a credit union mortgage vs. a bank mortgage

Membership requirement

You need to be a member of a credit union before you can apply for a mortgage there. Some credit unions have very specific membership requirements. For example, if community-based Omaha Credit Union is offering great terms on mortgages but you live in LA, it’s probably going to be difficult to get a membership. The Polish Slavic Federal Credit Union is only joinable if you are Polish or Slavic. You’ll need to produce a DNA test to prove you are 10% Macedonian to apply.

Pro Tip

If you have a friend who is a member of a credit union with strict membership requirements but great loans, then you can ask them to look at loan terms on your behalf. Then, you can see if this credit union is really worth joining. Credit unions are generally pretty accepting, but it could be tough to go through the membership application process if it is more strict.

Fewer locations and staff

The size differential between a credit union and a bank can be an issue for some. There usually aren’t nearly as many credit union locations as there are for big national banks. For instance, if you belong to the Idaho Fireman Credit Union and you move to Kentucky, it’s almost certain that there will be no Idaho Fireman Credit Union office there. In terms of staff, there could be a situation in which the few staff looking after their mortgages are not around or are busy when you call. Although customer service might be more personalized and preferable with credit unions, the lack of locations can sometimes be a problem.

Low variety of loan products

Credit unions sometimes do not have as many loan products as a bank does. Part of this has to do with the fact that credit unions aren’t actively trading asset-backed securities in the form of mortgages that banks are. Credit unions sometimes don’t have the willingness or capacity to offer the portfolio of loan products that a bank can provide. If you have a special type of loan product that you need, it’s possible you can only find this through a bank and not the nearby credit union.


Just as credit unions don’t have the capital to spend on immense staffing, they also may not keep up with the same technology as the banks use. This means that their customer relations management systems and communications may not be as high quality as the ones banks use. The same goes for apps that banks provide to check your balance and make deposits, etc.

So, which one is right for you?

Key factors to consider when comparing mortgages

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Whether you choose a credit union or a bank for your next mortgage is up to you and your needs. Compare your options for home loans from a variety of lenders.

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Is it better to borrow from a bank or credit union?

That all depends on your priorities. If lower fees, a better interest rate, and better customer service are a priority, then you might want to opt for a credit union-backed loan. If you are looking for more locations or better variety in regard to mortgage loans, then you might want to look at what banks have to offer.

Why do credit unions have better mortgage rates?

This has to do with the profit motive. A bank makes a profit on the difference in interest rate between what they charge and the Federal Reserve’s base rate. As banks are for-profit enterprises, the larger this markup, the better it is for them. As credit unions are not-for-profit, they might choose a lower markup than a bank to benefit the credit union’s members vs. a bank’s shareholders.

What is the downside of a credit union?

There are several downsides. Many credit unions have strict eligibility for membership, like the Polish and Slav FCU. They also don’t have as many locations as a bank and a smaller amount of staff to look over your mortgage. If technology is important to you, you might find that many credit unions lag 10-15 years behind with their systems.

Why choose a credit union over a bank?

If you want lower interest rates, lower fees, and a smiling face from across the street that you have known for years, you might want to consider a credit union. Remember, as the profit motive is different, you can save money that you otherwise would not with a bank.

Key takeaways

  • You can obtain a mortgage from a variety of financial institutions, including banks and credit unions.
  • Banks and credit unions both accept deposits, give loans, and offer financial products. However, a bank is a for-profit business, whereas a credit union is a not-for-profit financial collective.
  • Credit union mortgages have some advantages, such as lower interest rates and fewer fees. Furthermore, customer service can be much better and more personalized.
  • You must be a member of a credit union to apply for a mortgage, and the variety of loan products won’t match that of a bank. Furthermore, there are fewer locations, with fewer staff overseeing your mortgage.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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