A guide to credit union home loans: What you need to know

Female real estate agent guides a happy young couple who are confident with their credit union home loan.
January 25, 2024 | Lois Sullivan

You probably know you can get a mortgage from a traditional bank. But what about a credit union? For many homebuyers, credit union home loans have become a popular financing option thanks to their lower rates and fees. These mortgages can offer other benefits, including flexible lending terms and personalized service. Review this guide to learn everything you need to know about credit union home loans so you can be an informed buyer.

Understanding credit unions

A credit union is a financial institution that offers various services and products, including checking and savings accounts, credit cards and loans. Credit unions are owned by the members who use those products and services. While credit unions are similar to banks in many ways, there are also key differences between the two, including:   

  • Structure: Credit unions are not-for-profit institutions, whereas banks are for-profit enterprises. Credit unions share profits with their members by reducing fees or offering better rates. In comparison, banks distribute profits to their investors.
  • Membership: You must be a member of a credit union to use its products or services. Many credit unions have membership requirements. For example, you may need to live in a specific area or work for a certain employer. Everyone in the United States can apply to join Alliant Credit Union. You can be an employee/retiree of a qualifying company or a member of a qualifying organization, or you can live or work in a qualifying Chicagoland community. Or, you can become a member of the Alliant Credit Union Foundation, where Alliant will make the required $5 donation on your behalf.
  • Community focus: Credit union members often share similar interests, so there's a strong community focus among these institutions. Credit unions usually have a mission to give back to the community through financial education or small business support. For instance, the Alliant Credit Union Foundation, partners with charitable organizations that provide reliable broadband, digital literacy resources and technology to under-served communities.

Benefits of credit union  home loans

Like banks, credit unions offer mortgages to finance homes and other real estate. When you get a home loan through a credit union, you'll become a member and part-owner of the institution. Credit union mortgages come with other benefits, including:

  • Competitive interest rates. Since credit unions are not-for-profit institutions, they pass on savings to their members. Often this results in lower interest rates on loans, including mortgages. Lower interest rates can save you money throughout your mortgage.
  • Lower fees. Credit unions share profits with members by charging fewer fees, including lower processing and origination fees. For many people, lower fees can make home ownership less costly and more attainable.
  • Personalized customer service. Credit unions take pride in serving their members’ best interests, understand their members’ needs and provide personalized customer service. You'll work closely with a mortgage loan officer who can provide guidance and support throughout your mortgage application and beyond.
  • Flexible lending criteria. Credit unions are more likely than banks to work with people who have unique financial needs. They often have programs with flexible lending criteria for nontraditional borrowers, including all credit types.

Types of credit union home loans

With credit unions, you're eligible for many of the same home loans you can get from traditional banks. Credit unions commonly provide the following home loans for members.

Conventional loans

A conventional loan, or a loan not insured by the government, is the most common type of mortgage. Often, conventional loans offer lower rates for borrowers who meet the credit threshold and can afford a sizable down payment. Typically, you need a minimum credit score of 620 and at least a 3% down payment to qualify for a conventional loan.

Fixed-rate loans

A fixed-rate mortgage is another popular home loan option. With a fixed-rate mortgage, you pay the same principal amount and interest rate throughout the loan. Usually, fixed-rate loans have terms of 15 or 30 years, but some credit unions may offer different fixed-rate loan terms. The eligibility criteria depend on the type of fixed-rate loan you get, such as a fixed-rate conventional or Federal Housing Administration loan. A fixed-rate loan can be a good option if you want a predictable mortgage payment each month. However, you'll need to refinance if you want to take advantage of lower rates in the future.

Adjustable-rate loans

An adjustable-rate loan is the opposite of a fixed-rate mortgage, meaning the interest rates can vary throughout the loan term. Most adjustable-rate mortgages offer a lower fixed rate for a set period, such as five years. After that, the rates fluctuate depending on market changes. Like fixed-rate loans, ARMs come in various types, including conventional and government-backed loans. Typically, you need a minimum 620 credit score for a conventional ARM, while you may qualify for an FHA ARM with a credit score of 580 or above.

Since ARMs often have lower introductory rates, they're a good option if you want to save money initially. If you don't plan to live in the home for the full loan term, the introductory period can also allow you to take advantage of lower rates. The drawback of an ARM is you may make higher payments in the future.

Federal Housing Administration (FHA) loans

An FHA loan is a mortgage backed by the Federal Housing Administration. Since FHA loans usually have lower limits than other types of loans, they may also have lower interest rates. Typically, you can get an FHA loan if you have a credit score of 580 and a 3.5% down payment. You may be able to qualify with a credit score of 500 if you can make a 10% down payment or higher.

These FHA loans can benefit first-time homebuyers because they have more relaxed eligibility criteria. In addition, some credit unions may offer special programs for first-time homebuyers. Research some credit unions in your area to determine whether you may qualify for those programs if you're purchasing your first home.

U.S. Department of Veterans Affairs (VA) loans

A VA loan is a mortgage available through a program established by the U.S. Department of Veterans Affairs (VA) (previously the Veterans Administration). With VA loans, veterans, service members and their surviving spouses can purchase homes with little to no down payment and generally receive a competitive interest rate.

Jumbo loans

A jumbo loan, also known as a jumbo mortgage, is a type of financing designed to finance luxury properties and homes in highly competitive local real estate markets, but with rigorous qualifying requirements and tax implications.

Doctor loans

Doctor mortgage loans, or physician loans, are mortgages with more generous terms and looser qualifying requirements than most conventional loans. Why? Because these doctor mortgage loans are geared towards medical professionals who have a harder time qualifying for a typical mortgage due to their considerable college and med school debt and limited savings.

Construction loans

A construction loan (also known as a “self-build loan") is a short-term loan used to finance the building of a home or another real estate project. The home buyer takes out a construction loan to cover the projects costs before obtaining long-term funding. Because they are considered relatively risky, construction loans usually have higher interest rates than traditional mortgage loans.

Secure a home loan from Alliant Credit Union

When financing your next home, you have many options, including credit union home loans. The best way to find the right mortgage is by shopping around and comparing rates. Include credit unions in your search to make a well-informed decision about your home purchase. Do you have additional questions about credit union home loans? Contact a mortgage loan officer from Alliant Credit Union. We offer a variety of home loans for our members and would be happy to speak with you about your options.

Learn more about home loans:

  • How do you choose the best mortgage?
  • Six common mortgage myths, busted

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