A credit union could be your best source for a mortgage
Financial institutions have pulled back on mortgage lending since the housing bubble burst, but credit unions have increased their mortgage lending substantially. According to CreditUnions.com, credit unions originated 60 percent more first mortgages during the first nine months of 2012 compared to the first nine months of 2011.
While bank customers should shop around for a mortgage lender to ensure they get the lowest rates and fees, credit union members may want to check with their credit union first. Credit unions often offer lower interest rates and fees than other financial institutions, and typically work with members on an individualized basis.
Mary Waterman, lending director of the Montgomery County Employee Federal Credit Union in Germantown, Md., says credit unions can offer closing cost assistance to their members or a credit at the settlement table.
"The underlying philosophy of a credit union is people helping people," says Jeanette Mack, manager of corporate communications with Navy Federal Credit Union in Vienna, Va. "Our members are partners in our not-for-profit business and anything we make in the way of profits goes back into the credit union in the form of reduced interest rates."
"Credit unions offer every product that other financial institutions offer, including FHA and VA loans, fixed-rate conventional loans for 10, 15, 20 and 30 years and a variety of adjustable rate mortgages," says Scott Toler, president and CEO of the Credit Union Mortgage Association (CUMA) in Fairfax, Va., which supplies mortgage services to 60 credit unions. .
In addition, many credit unions offer their own loan programs to meet member needs.
"We offer our 'Homebuyer's Choice' mortgages with a zero down payment requirement, no private mortgage insurance and up to six percent in seller contributions for closing costs," says Mack. "We also offer refinancing on home loans up to $1 million with 97 percent loan-to-value."
Navy Federal pays up to $2,500 in closing costs for members and will match any loan approval at a lower interest rate. Toler says some credit unions offer a $500 rebate at settlement or even pay all closing costs for members.
"We offer the 'Harmony Loan' to members of credit unions we work with, which allows borrowers to reset their interest rate as often as every 120 days if mortgage rates decline," says Toler. "Instead of refinancing, borrowers can check rates online and reduce their interest rate with the click of a button. There's no loan approval or appraisal process and no closing costs."
While credit unions were traditionally restricted to employees in certain industries or residents in a particular area, "credit unions are a lot easier to join than they used to be," says Toler. "For instance, the Fairfax County Federal Credit Union in Virginia used to be open only to county employees, but membership is now open to anyone who lives, works, worships or goes to school in the county. Some credit unions are more closed, but others are affiliated with an association and open to anyone who makes a small donation to the association."
You can find a credit union to join at the National Credit Union Association. Membership fees are very reasonable, usually ranging from just $5 to $20.
However, just as with banks, credit unions vary widely in their fees and services. The credit union you qualify to join may not necessarily be the one with the best mortgage products.
"Credit unions are fiercely pro-customer," says Brian Martucci, a mortgage lender with GetLoans.com in Washington, D.C. "However, a credit union with regional or centralized operations will be less likely to give their customers special attention than a direct lender."
Martucci says even if a credit union doesn't have centralized operations, the size of the credit union can impact its ability to provide individualized attention. "Big entities just don't work as well as small ones," he says.
Some Realtors say that a large credit union can be just as slow to respond to customer needs as a large bank.
Toler says that while credit unions use the same computer system to underwrite their mortgage as banks, credit unions keep about 25 percent of their loans in their portfolio rather than selling them to investors. Maintaining a substantial portfolio of loans allows credit unions to be more flexible with customers.
"In a credit union, we can use old-fashioned banking methods for our members," says Toler. "For example, if a 20-year member of the credit union is rejected by the desktop underwriting system because of a slightly low credit score, we can evaluate that loan personally and choose to keep it in our portfolio."
Individualized mortgage approvals, closing cost assistance and low lender fees are all reasons to consider becoming a member of a credit union. However, be sure to compare all your options between a bank, a direct mortgage lender and a credit union to see which works best for your needs.
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Michele Lerner, author of "HOMEBUYING: Tough Times, First Time, Any Time", has been writing about personal finance and real estate for more than two decades for a variety of publications and websites including Investopedia, Insurance.com, HSH.com, SavingsAccount.com, National Real Estate Investor magazine, The Washington Times, Urban Land magazine, NAREIT's REIT magazine and numerous Realtor associations.