Best Tips for Getting Competitive Credit Union Home Loans

Although your first thought might be about getting a home loan through a traditional bank, you should also consider credit unions, like Capital Credit Union. Credit union home loans typically offer lower interest rates, have fewer or lower fees, and might also feature more flexible lending terms. This article explores strategies for getting the best deal on a competitive home loan through your credit union.

Assess and Improve Your Financial Health

Before beginning any type of loan process, you should first have a clear understanding of your finances. No matter what lender you choose, they will evaluate certain factors, such as your income, your outstanding debts, and your savings, before deciding how much they are willing to lend you and what rate you qualify for.

Debt-to-Income Ratio (DTI)

To assess your financial health, start by calculating your DTI ratio by comparing your total monthly debt to your total monthly income. A lower DTI indicates to lenders that you are less of a risk, and typically, they will be willing to lend you more. Generally speaking, a DTI ratio of 43 percent is the highest ratio you can have while still qualifying for a mortgage, but ideally, you should try to get your DTI ratio down to around 35 percent, if possible, by paying down your debt.

Credit Score

Lenders will also take your credit score into account when determining your interest rate. Usually, borrowers with a higher credit score will qualify for a lower interest rate, which will save you money over the life of the loan.

Get a free copy of your credit report from any of the three major credit bureaus (TransUnion, Experian, and Equifax). Does everything look accurate? If not, dispute any errors or inaccuracies you find.

Next, work on improving your credit score. Avoid applying for any new credit cards (even from a retail store) before securing your mortgage. Every time you apply for a new credit account or loan, it results in an inquiry into your credit, and too many inquiries can lower your score. It’s also important to pay down credit card balances, focusing first on the ones with the highest interest rates. A general rule of thumb is to try to keep how much credit you’re using versus your credit limit below 30 percent.

Savings

If you can, save for a larger down payment. The more you can pay up front, the less you will need to borrow, which might get you better terms for your loan. In many cases, you can avoid private mortgage insurance, which adds to your monthly payments, if you have a down payment of 20 percent or more.

Join a Credit Union

Since credit unions are member-owned financial institutions, it’s a good idea to join before you start the loan application process. Sign up as soon as you can because some credit unions may offer better rates, lower fees, or other perks to more established customers or those with higher balances. Check into all member benefits for credit union home loans, which might include reduced or waived mortgage fees or discounts for members who have multiple accounts (e.g., checking, savings, car loan, etc.).

Although membership requirements vary, usually you need to live in a certain geographic area, be part of an affiliated organization, or work for a specific employer. At Capital Credit Union, membership is open to anyone who lives, works at or owns a business, owns property, or attends school in one of 16 Northeast Wisconsin counties, and signing up is easy. Simply apply for a new account and make a deposit.

Explore Your Loan Options

When comparing interest rates at different credit unions, request a quote or loan estimate from each so you can look at them side-by-side. Aim for at least three quotes. Make sure you understand the specifics of the types of loan products available to you. For example, some credit unions have loan programs specific to first-time homebuyers, veterans, or low-income families.

You will likely also have a choice between a fixed-rate mortgage and an adjustable-rate mortgage (ARM). While a fixed-rate mortgage might have a higher rate, it gives you consistency over time. ARMs typically have lower rates initially, but they also have the potential to rise once the fixed initial period ends. How long you plan to stay in your home might affect which mortgage is most appropriate for you. For instance, if you plan to move in a couple of years, an ARM might be a better option because you won’t have to worry about your rates rising.

Don’t forget to factor in the annual percentage rate (APR), which includes both interest and fees. A lower initial rate might seem like the best deal, but high fees could actually make it more expensive over time. Using a mortgage APR calculator can help you get a more complete picture.

Timing the Market

If you have the luxury of time, it can be helpful to try to time the housing market to get the best deal possible on your mortgage. Mortgage rates fluctuate regularly, but there are a few things you can do to put yourself in a better situation:

• Monitor interest rates and try to apply for a mortgage when they are lower.

• Consider applying for a loan during the fall and winter months when you will have less competition from other homebuyers.

• If you find a rate you like but are not quite ready to apply for a loan, ask the lender about locking in that rate for a month or two to protect you from rising interest rates.

Capital Credit Union Home Loans

At Capital Credit Union, we believe in helping our members achieve their financial goals, including home ownership. When it comes to credit union home loans, we have some of the best options available. If you have questions about our loan products, contact our team members or stop by in person at one of our locations. We would love to be a part of your financial journey!

All loans are subject to approval. Terms and conditions may vary based on creditworthiness and other eligibility criteria. Membership required.