Where to Get a Mortgage as a First Time Homebuyer: Bank vs. Credit Union vs. Non-Bank Direct Lender

First-time homebuyers often wonder whether to get their first mortgage loan from a bank, a non-bank mortgage lender, or a credit union. This article will explain the key differences between each type of lender and how to make the best choice as a first-time homebuyer. 

Let’s start by explaining the difference between a credit union, a direct lender, and a bank: 

Credit unions are non-profit generating financial institutions that have a membership structure whereby members can borrow against and deposit to a pool of money at interest rates set by the credit unions. Banks are for-profit financial institutions that act as intermediaries between depositors and borrowers. Direct non-bank lenders are mortgage lenders that operate independently from banks that originate, process, and fund mortgage loans directly to the borrower. 

The key difference between banks/non-bank lenders and credit unions are that banks and mortgage lenders are owned by shareholders and are required to make a profit on their business operations, whereas credit unions are governed by their members and distribute their profits among their members.

When thinking about which type of lender to get a mortgage from, there are some key considerations to take into account. 

Loan Cost

Given the non-profit nature of credit unions, you’ll likely be able to secure a lower interest mortgage rate compared to borrowing from a bank or non-bank lender. That being said, banks and non-bank lenders will tend to move their mortgage rates up and down depending on market interest rates and Federal funds rates, whereas credit unions can be less sensitive to the market. The only way to compare rates is to shop loans from all three types of lenders and compare the full package you’re being offered.

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Loan Options

If you’re looking for a particular type of loan or to explore a variety of loan options, a mortgage lender will be the best place to start. Credit unions are likely to have fewer loan options, whereas direct lenders can offer you many types of and terms on mortgage loans, depending on your situation. 

If you’re looking for a conventional loan, a credit union or a bank might fit your needs, but if you’re buying land or building from scratch, a mortgage lender will have more loan types that will be relevant to you. 

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Borrower experience

Banks are often bigger and more technologically advanced than credit unions and may offer a much more sophisticated online and in-person experience than credit unions. If having online support, or app-based mortgage banking is really important to you, for example, a bank may be the preferred lender choice for you. 

One key difference between credit unions and banks/direct lenders is the membership experience. Credit unions are notorious for their great customer service and community experience, where members often build personal relationships with their lenders and other members. 

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Borrower Eligibility

Banks may require borrowers to have higher credit scores (620+) than mortgage lenders and credit unions. Banks, mortgage lenders, and credit unions will all look at your unique financial situation to determine what you qualify for.

One unique point about credit union loans are that most credit unions require their mortgage borrowers to be members of the credit union, whereas banks and mortgage lenders will lend to anyone who qualifies. Credit unions also tend to have local footprints, which could be a great thing as they specialize in the local market, but depending on your situation, geographic restrictions may be a potential downside to choosing a credit union. 

Frequently Asked Questions

Which one is better for a first time homebuyer, a mortgage broker or a bank? 

This is entirely based on personal preference, needs, and your financial profile. We recommend talking to lenders from all categories while shopping loan options! 

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Can I negotiate mortgage rates and loan terms with credit unions, banks, or direct lenders?

Yes! This is what it means when people tell you to “shop rates”. 

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How can Foyer help me find the best lender for my needs?

Foyer gives you all the membership benefits of a credit union, all of the resources of a mortgage lender, and the digital experience of a bank. Foyer members can match with different lenders in the app to shop the best rates and terms, while getting expert guidance about the homebuying process along their journeys.

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What should I consider when choosing between a credit union, a bank, or a direct lender?

Think about factors such as loan costs, available loan options, borrower experience, and eligibility requirements. Credit unions often offer lower rates and a personalized experience but may have fewer loan options. Banks provide advanced technology and a broad range of services but might have higher rates. Direct lenders offer extensive loan options and terms but can vary in customer service quality.

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Do credit unions require membership to obtain a mortgage loan?‍

Yes, most credit unions require you to be a member to qualify for a mortgage loan. Membership often involves opening a savings account or meeting other criteria set by the credit union.

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How does borrower eligibility differ among credit unions, banks, and direct lenders?

Banks may have stricter credit score requirements and eligibility criteria compared to credit unions and direct lenders. Credit unions typically look at overall membership and local market conditions, while direct lenders focus on a range of loan products and borrower qualifications.

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Is it worth contacting multiple lenders when shopping for a mortgage?

Always! Getting loan offers from multiple lenders and lender types allows you to compare rates, terms, and services, helping you make a more informed decision and secure a better loan.

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