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Mortgage application rejected? Try a credit union instead

Ginger Dean

December 2, 2013

By: Ginger Dean, Home Finance Specialist

In: Finance and Legal

If you've been denied for a mortgage and are now looking at other options, check your local credit union. These "not for profit" institutions are member owned and don't vary much from your bank.

In fact, they often offer the same - if not more options - than many banks. These include the standard 30 and 15 year fixed rate mortgages, adjustable rate mortgages, VA home loans, FHA loans, home equity loans, and home equity lines of credit.

The catch? You must be a member to enjoy the benefits. Membership is often restricted to industry specific groups and you must meet certain criteria in order to join. However, you get a variety of benefits that may sway your decision to consider the credit union instead of a bank:

3 pros of using a credit union for your mortgage application

Personal service

Credit unions are well known for their attention to detail and service when dealing with their members. This is because credit unions are often smaller than banks and value the patronage of each of their members. Due to the fact that membership is limited to a select few, they realize that each member is a potential gold mine for future business. When you've been dealt a mortgage application rejection, credit unions are often willing to look at your total financial picture instead of allowing a single credit score to drive the decision the way it can at larger banks.

Lower interest rates

Credit union members enjoy lower interest rates, specifically with mortgages and other loan products. They are able to do this because of lower overhead costs. The savings then get passed on to their members. Whereas your bank may offer you a higher rate based on national averages, your credit union may be able to offer you lower rates which saves you more money over time. Though, you should keep in mind that simply being a member doesn't guarantee approval. You're simply given a better chance at approval due to less restrictive underwriting standards.

Smaller portfolios = more flexibility

Another reason you may want to check with your credit union is that their mortgage loans are held in house and thus won't be sold to investors. Banks have to consider the other "hands in the pot," which are often secondary investors, when deciding whether or not to approve your loan. Consequentially, this leads to banks needing higher credit scores and larger down payments to qualify applicants which leads to more rejections due to tightened lending standards. This isn't the case with credit unions. Credit unions have the benefit of managing their own portfolios and therefore are able to relax their underwriting standards.

Though credit unions are often overlooked because they restrict their benefits to members of select groups, once you become a member you're able to enjoy all of the associated financial privileges that can save you money now and in the future.

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