Conventional loan APR: Credit union vs traditional bank
Member since 2019 · 64 posts · 12 votes
Conventional loan APR: Credit union vs traditional bank
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Dustin TuckerPro Member
Lender · Savoy, TX · Member since 2020 · 187 posts · 78 votesHello Ethan,
I think the main difference between traditional banks and credit unions are their guidelines, most credit unions are manual underwriting, because they are using their own money and keeping the loans. Your traditional bank in most instances is going to take the loan and resell it on the secondary market.
For House Hacking, my favorite concept is purchasing a duplex, triplex or quadplex, you accomplish 2 things in 1 step, you get a roof over your head, and at a minimum you get someone else to help pay for your mortgage, and when its time to move out, you already have your 1st investment property under your belt.
6 Replies
- 2yDustin TuckerPro MemberLender · Savoy, TX · Member since 2020 · 187 posts · 78 votes
Hello Ethan,
I think the main difference between traditional banks and credit unions are their guidelines, most credit unions are manual underwriting, because they are using their own money and keeping the loans. Your traditional bank in most instances is going to take the loan and resell it on the secondary market.
For House Hacking, my favorite concept is purchasing a duplex, triplex or quadplex, you accomplish 2 things in 1 step, you get a roof over your head, and at a minimum you get someone else to help pay for your mortgage, and when its time to move out, you already have your 1st investment property under your belt.
- Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes2y
Get fee sheets or loan estimates from whichever 2-3 lenders you're considering and make an apples to apples comparison. APR will tell a more complete picture than note rate, but APR can still be deceiving. A couple things to understand:
- Rate is a function of price. You can pretty much have whatever rate you want if you're willing to pay for it. Dont get hung on the number value of a rate on a loan estimate - figure out what you're paying for that rate
- Read up on the differences between boxes A, B, and C on a loan estimate. Box A is direct lender charges, box B are things the lender is making you get that you cannot shop for (for instance, the appraisal or credit report), and box C is closing costs that you can shop/control
- Lenders can move things around between boxes A and B to change the way costs appear. Get the lender to explain the items to you
- Dont make surface level comparisons of monthly payments or APR. Some lenders grossly underestimate tax and insurance escrow payments or closing costs out of incompetence or deceptiveness. If there is a disparity on loan estimates for either of these items, at least one of them is wrong, and the APR may be based on unrealisticly low costs.
- Quality absolutely, 100% makes a difference when it comes to lenders. This is a very important and expensive transaction - this isnt the place to be penny wise and pound foolish. Credit unions are notorious for having bad and incompetent underwriting and process. You may think you're being savvy by saving a couple hundred bucks only to have your loan fall apart a week before closing and miss out on your deal. Once youve made an apples to apples comparison between lenders, weigh both the cost differences AND the differences in quality/competence. If one lender is clearly more competent than the other but is also offering a higher rate, ask to see a what a buydown to the rate you want would cost for the better lender. This is often the $ cost of quality and will help clarify your options - the cost may be worth it, or it may not. Also, do not compare costs over a 30 yr period - very few people keep the same mortgage for 30 years. 5-10 years is more realistic.
- Overlays - some lenders may have more restrictive overlays than Conventional guidelines call for. This is especially true when the lender plans to balance sheet the loan (like many credit unions do). You may be told you're allowed to count/use XYZ at lender A, only to get told by Lender B that you cant count/use XYZ. This goes back to the above point about quality.
Hope this helps.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
@Ethan McRae
I typically use credit unions for primary residence (many don’t lend for investment properties) but if they do we have found rates at credit unions to be better than a traditional bank
For example I can get a 30 year fixed today at my CU for 6%
7e investments53 Reviews - Member since 2019 · 64 posts · 12 votes2y
Quote from @Patrick Roberts:
Get fee sheets or loan estimates from whichever 2-3 lenders you're considering and make an apples to apples comparison. APR will tell a more complete picture than note rate, but APR can still be deceiving. A couple things to understand:
- Rate is a function of price. You can pretty much have whatever rate you want if you're willing to pay for it. Dont get hung on the number value of a rate on a loan estimate - figure out what you're paying for that rate
- Read up on the differences between boxes A, B, and C on a loan estimate. Box A is direct lender charges, box B are things the lender is making you get that you cannot shop for (for instance, the appraisal or credit report), and box C is closing costs that you can shop/control
- Lenders can move things around between boxes A and B to change the way costs appear. Get the lender to explain the items to you
- Dont make surface level comparisons of monthly payments or APR. Some lenders grossly underestimate tax and insurance escrow payments or closing costs out of incompetence or deceptiveness. If there is a disparity on loan estimates for either of these items, at least one of them is wrong, and the APR may be based on unrealisticly low costs.
- Quality absolutely, 100% makes a difference when it comes to lenders. This is a very important and expensive transaction - this isnt the place to be penny wise and pound foolish. Credit unions are notorious for having bad and incompetent underwriting and process. You may think you're being savvy by saving a couple hundred bucks only to have your loan fall apart a week before closing and miss out on your deal. Once youve made an apples to apples comparison between lenders, weigh both the cost differences AND the differences in quality/competence. If one lender is clearly more competent than the other but is also offering a higher rate, ask to see a what a buydown to the rate you want would cost for the better lender. This is often the $ cost of quality and will help clarify your options - the cost may be worth it, or it may not. Also, do not compare costs over a 30 yr period - very few people keep the same mortgage for 30 years. 5-10 years is more realistic.
- Overlays - some lenders may have more restrictive overlays than Conventional guidelines call for. This is especially true when the lender plans to balance sheet the loan (like many credit unions do). You may be told you're allowed to count/use XYZ at lender A, only to get told by Lender B that you cant count/use XYZ. This goes back to the above point about quality.
Hope this helps.
Really appreciate this. Thanks
- Lender · Member since 2022 · 72 posts · 19 votes2y
Hello Sir! Honestly I would choose a mortgage broker and let me explain you why.
When you go to a bank or credit union the loan offer works for that institution and will offer you the rate they company offer, instead if you work with mortgage broker we have the ability to shop with over 100 and more institutions and shop for the best rates available, fast closing and customizable solutions, text me so i can give you my rates base on your credit score.
- 2yDerek BrickleyBusiness MemberLender · Ann Arbor, MI · Member since 2021 · 664 posts · 226 votes
Hey Ethan, of course we are going to be biased here but some of the pros and cons:
Pro: In a cut in dry answer, credit unions can offer lower rates some of the time. They also might be local and if you bank with them there might be incentives for lending with them
Con: A credit union is restricted on the lending options they can offer (they have limited money to lend) and they might not have another alternative that could be better for you. Credit unions are not in the mortgage business - so on unique situations including househacks you may be more likely to come across issues during the process.
Either way, once you have a property under contract, speaking with various lenders will give you the best idea. Ask for everything in writing as well.
Gold Star Mortgage Financial Group548 Reviews
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