What Is a Credit Union?
When securing a mortgage to buy a home, most buyers immediately think of massive, national commercial banks (like Chase or Wells Fargo). However, a credit union operates on a fundamentally different business model.
A commercial bank is a massive, for-profit corporation. Its primary goal is to squeeze as much profit as possible out of borrowers to pay dividends to its Wall Street shareholders.
A credit union is a non-profit cooperative. It does not have outside shareholders. When you deposit $100 into a credit union, you become a "member-owner." Because the credit union is owned by the people who bank there, its goal is to benefit the members, not Wall Street.
Advantages in Real Estate Financing
Because they are non-profit and exempt from many federal taxes, credit unions pass their massive savings directly to the borrower in the form of highly competitive real estate loans:
- Lower Interest Rates — Credit unions frequently offer mortgage interest rates that are a quarter-point to a half-point lower than mega-banks.
- Lower Closing Costs — Credit unions are notorious for having vastly lower "origination fees" and "junk fees" on their Loan Estimates.
- Portfolio Lending — Mega-banks usually sell your mortgage to Fannie Mae the day after closing, meaning their loan rules are incredibly strict. Many credit unions keep your mortgage "in-house" (portfolio lending). Because they keep the loan, they can bend the rules and approve mortgages for buyers with unique financial situations, such as self-employed freelancers.
Membership Requirements
The only downside to a credit union is that you cannot simply walk in off the street and get a loan. You must meet their "field of membership" requirements. Historically, this meant you had to work for a specific employer (like a teachers' union or a military base). Today, however, many community credit unions allow anyone to join simply by living in a specific Florida county or making a $5 donation to an affiliated charity.
Related Terms
- Mortgage — The primary real estate loan product offered by credit unions
- Closing Costs — The fees that are often significantly lower at a credit union
- Closing Disclosure (CD) — The document that reveals the credit union's lower fees
Barnes Walker Real Estate Closings
Barnes Walker's attorney-led closing department routinely coordinates complex residential real estate closings with local and national credit unions, ensuring our buyer clients seamlessly navigate the unique underwriting and funding requirements of non-profit cooperative lenders. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC