When you’re ready to purchase a house, one of the initial and crucial steps is figuring out where to secure a home loan. Getting preapproved from a lender is key. With various types of mortgages and lenders available, it can be overwhelming to choose the best option to finance your dream home.
While there are numerous lending options, they generally fall into two main categories: mortgage brokers and banks or credit unions. The decision between a credit union and a mortgage broker depends on your financial situation and preference. Below, we’ll explore the differences between them, along with their pros and cons, to help you find the right lender for your specific needs.
What Is a Mortgage Broker, and How Do They Work?
While not lenders themselves, mortgage brokers act as intermediaries between borrowers and the lenders they partner with. They work with a range of lenders to provide clients with more options than they might find independently, and they can help clients with specific circumstances such as bad credit by leveraging their relationships with lenders.
However, like real estate agents or lawyers, mortgage brokers charge a fee for their services, which will be added to the cost of the mortgage. Moreover, since many brokers earn commissions from lenders, they may push you towards a mortgage or rate that’s not necessarily the best fit for you. To avoid these potential issues, it’s essential to thoroughly research and vet any broker you’re considering.
What’s the Difference Between a Mortgage Broker and a Credit Union?
While both mortgage brokers and credit unions offer opportunities for home loans, there are key differences. Understanding these differences can help potential homebuyers make informed decisions that best suit their needs and goals.
The essential difference between a mortgage broker and a credit union lies in their role and structure:
Mortgage broker:
- Acts as an intermediary between you and multiple lenders
- Work on your behalf to find the best mortgage deal from various lenders
- Typically independent and may work with banks, credit unions, or other financial institutions
- Earn a commission from lenders for originating loans
Credit union:
- A member-owned financial cooperative that offers a variety of banking services, including mortgages
- Operate as not-for-profit organizations, prioritizing their members’ financial well-being
- Typically offer competitive rates and personalized service, often with a focus on the local community
- Are owned by members of the credit union, who have voting rights in its governance
Why Getting a Mortgage Through a Credit Union Might Be Best
Credit unions can be the better choice for you if you’re shopping for a mortgage. While mortgage brokers are top of mind of most home buyers, credit unions offer distinct advantages.
From competitive rates to personalized services, here’s why getting a mortgage through a credit union might be the best choice for prospective homebuyers.
Personalized service and local expertise
One of the standout benefits of working with a credit union is the personalized service and local expertise they offer. Unlike large financial institutions, credit unions are often deeply rooted in the communities they serve. This means you’re more likely to receive personalized attention and guidance tailored to your specific needs and the local housing market.
Easier credit approval
Credit unions are great options for those that don’t have the best credit. According to the National Credit Union Association, credit unions require lower credit scores on average than other lending institutions.
One of the reasons credit unions have more flexible qualification options is because, unlike other lending institutions, credit unions don’t often sell their loans to other institutions. When a lending institution, such as a bank, sells a mortgage they originate, they lose the ability to control interest rates and underwriting standards, limiting the bank’s flexibility with mortgage terms.
Lower interest rates
Unlike banks and other financial institutions, credit unions don’t prioritize profit when determining interest rates. That’s why credit unions can offer lower interest rates on average than other financial institutions. This is also the same for personal loans, credit cards, and other financial products offered by a credit union.
Lower fees
Along with lower interest rates, credit unions also tend to offer lower fees than banks and other financial institutions. This is because credit unions are more interested in customer satisfaction rather than making a profit. Banks and other financial institutions charge additional fees, such as processing costs and origination fees to make more money, but most credit unions limit these.
Community focus and member benefits
By choosing a mortgage through a credit union, you’re also supporting an institution that prioritizes its members and the community. Credit unions often offer additional benefits such as preapproval, financial education resources, discounted rates on other banking products, and community reinvestment initiatives.
Streamlined process and faster closing
Contrary to popular belief, obtaining a mortgage through a credit union can be just as convenient and efficient as going through a bank or broker. With a streamlined process and a focus on member satisfaction, credit unions can help you lock in a good rate, facilitate faster closings, and provide smoother transactions.
Access to other financial services
As a member of a credit union, you have access to other financial services that a mortgage broker would not be able to offer. For example, you can start and manage a savings or checking account or start a credit card with the same credit union that offered your mortgage loan.
Consider Arizona Central Credit Union As Your Home Financing Partner
While there are certainly advantages to working with mortgage brokers or traditional financial institutions, getting your mortgage through a credit union offers unique benefits that shouldn’t be overlooked. From personalized service and competitive rates to community focus and flexible terms, credit unions can be the ideal partner in your home buying journey.
Arizona Central Credit Union has helped individuals and families secure the home of their dreams for nearly a century. We offer various home loan options with some of the best terms and rates throughout the state. Use our mortgage calculators to learn more about your best options.
If you’re ready to shop for a home loan, learn more about getting prequalified or contact a mortgage specialist. If you have any questions about home mortgages or other loans, contact us online or call (866) 264-6421.
