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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.
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:
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:
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.
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.
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.
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.
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.
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.
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 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.
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.
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.
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