- 4 min read
- A great loan is more than a low rate.
- Credit unions promise low closing costs.
- Consider a credit union if your state charges an intangible tax.
Credit Unions May Have the Edge on Mortgage Closing Costs.
When it comes to mortgage rates, credit unions swim in the same ocean as commercial banks and mortgage brokers. Therefore, if you compare the rates offered by credit unions, banks, and mortgage brokers, the same average customer should get about the same interest rates from all three.
However, when it comes to closing costs, credit unions may have an edge on banks and brokers in some states and situations.
|Credit Union Mortgage Fast Facts|
|Origination share 2005 (number of loans)||3.3%|
|Origination share 2011||7.8%|
|Loan volume 2005||$60.4 billion|
|Loan volume 2011||$82.5 billion|
|Est. loan volume 2012 First mortgages||$100 billion|
|Credit union members 2010||92.6 million|
|Eligible US residents Potential members||1.4 billion|
|Member?to?potential?member-ship rate 2010||6.6%|
|Credit unions offering mortgages||~3,500|
|Total US credit unions||7,324|
Sources: SMR Research Corp., American Credit Union Mortgage Assoc., National Credit Union Administration, Callahans’ Peer-to-Peer
The cost to a home loan is more than its interest rate, although the rate is a very important part of a loan offer. The rate you pay is based on the lender’s underwriting standards. For example, a lender may have a hard rule disqualifying anyone with a FICO score of less than 720. On the other hand, another lender’s underwriting department may have a graduated scale that increases the interest rate as an applicant’s score decreases, with a cut-off at 640.
Aside from the interest rate, look at the following four details when considering a loan offer:
- Points: The amount you need to pay to buy a lower interest rate. The number of points varies by each lender’s policies and its view of the market.
- Closing costs: Some closing costs are fixed, such as county filing fees and appraiser costs. Other closing fees set by the lender. Here is where credit unions claim advantages over commercial lenders.
- Incentives: Lenders adjust profit margins on rates and fees to reach company quotas. Plain old dumb luck is sometimes your friend when home loan shopping.
- Time-to-closing: Due to the high volume of refinances in 2012, banks are telling new loan borrowers that closings may take 90 days to complete. A credit union may offer a shorter closing time.
Use the Bills.com mortgage calculator to find out how much your mortgage rate monthly payment will be.
Credit Union Mortgages
Every mortgage originator promises prompt, personal service, and many credit unions do, too. However, in the case of credit unions, there may be some truth to that promise. Most credit unions are, by banking standards, small institutions who know their members. If you are a long-time credit union member, it may be easier for you to qualify at that credit union than at a national bank with which you have no relationship.
Credit unions also promise faster closing times than other lenders, though everyone’s closing times vary based on the complexity of their loan applications.
The biggest potential benefit to working with a credit union is cost. Most credit unions promise great service, a short time to closing, and lower origination fees than banks and brokers. There is merit to the last claim in some states. For example, in Georgia and Florida, home buyers who borrow through a bank or broker must pay an "intangible recording tax" for a long-term note secured by real estate. Borrowers at member-owned credit unions are exempt from the tax. In states with the intangible tax, the amount saved per $100,000 borrowed is about $500.
Some credit unions self-fund their mortgages, which allows a borrower to continue to work with the mortgage officer that completed the loan application. Other credit unions sell their loans, which most mortgage originators do today, but retain the servicing rights to the loan. Again, this means the borrower continues to make payments to the same lender throughout the life of the loan.
Mortgage Rates Today
Mortgage rates fluctuate from lender to lender. It pays to shop around. Get a mortgage quote from a bills.com mortgage provider to start your loan shopping.