Check out credit unions, VA for home loans
Credit unions are best known for automobile financing, so it often surprises people that they also write mortgages. Not in a big way, perhaps. But if you are among the 92.2 million people who belong to credit unions, they are worth checking out.
A half-dozen years ago, credit unions' share of total first mortgage originations was a mere 2 percent. But with the collapse of the secondary mortgage market, their share has nearly tripled.
Still, not a huge proportion. But it's steadily rising — from $55 billion worth of home loans in 2006 to $61 billion in 2007, $71 billion in '08 and $96 billion in '09.
Production fell off somewhat last year, to $84 billion, because of the malaise in the housing market. And in 2011, the not-for-profit financial institutions are on track to originate just $68 billion in mortgages, according to Michael Schenk, a senior economist at the Credit Union National Association.
Even at the slower pace, though, this year will be credit unions' fifth-best on record — a total of nearly half-a-million mortgages at an average loan amount of $154,000.
While more than half of all credit union members have a first mortgage, only a fraction have their loans with their credit unions, which gained the authority to offer such loans in 1978.
Credit unions tend to be overlooked because they don't employ a stable of loan officers, and real estate agents rarely recommend them to clients. But they offer the same loan products as other lenders — fixed-rate loans, adjustables, home equity loans and more.
Credit unions offer rates that typically are on par with those offered by mortgage companies or banks. But lately, says Ed Roberts, Washington bureau chief of the trade publication Credit Union Journal, they have slashed their rates beyond what traditional mortgage lenders have been able to do.
Moreover, credit unions usually don't tack on all the junk fees that more traditional lenders like to charge. They also tend to offer better, more personalized service. Indeed, they consistently earn the highest marks among financial institutions in customer satisfaction surveys.
Just as important, Roberts says, is that "the affinity of credit union borrowers — the so-called common bond — has continued to keep delinquency and loss rates lower than banks and other mortgage lenders."
Obviously, you have to be a member to borrow money from a credit union. But don't pass on this excellent source of financing if you don't have one at work or church. While most credit unions are occupational, many are community-related or oriented to an association, school or organization.
Navy Federal, for example, is the world's largest, serving all Department of Defense military and civilian personnel and their families. Kinecta, which got its start in 1940 as the Hughes Aircraft Employees Federal Credit Union, is open to anyone who lives, works, worships or attends school in select Los Angeles-area ZIP codes.
There are nearly 7,400 federal- or state-chartered credit unions nationwide. Not all offer mortgages, but a healthy percentage does. To find one near you, go to creditunion.coop and enter your affiliation (company, city, school, church, etc.) and ZIP code.
The VA isn't open to everyone, either. And it doesn't make loans directly. But if you are among the nation's 25 million citizens who have served in the armed forces, Uncle Sam will stand behind you with a promise to pay private lenders if you should default on your mortgage.
The vast majority of the country's military personnel who served at least 90 days are eligible. To see if you qualify, go to homeloans.va.gov.
Lenders accept the VA guarantee as a substitute for a down payment. And with the guarantee pegged at 25 percent of the so-called conforming loan limit — the government-imposed ceilings on loans that can be purchased in the secondary mortgage market by Fannie Mae and Freddie Mac — VA borrowers in most places can buy houses costing up to $417,000 with no money down.
Better yet, whereas the Fannie-Freddie loan ceiling in high-cost areas fell back on Oct. 1 from $729,750 to $625,500, the limit for zero-down VA loans in expensive places has not changed — and is much higher.
It is a whopping $1.094 million in Pitkin County, Colo., and Nantucket, Mass. And it is an even $1 million in Alameda, Contra Costa, Marin, San Francisco and Mateo counties in California. County-by-county VA loan limits can be found at the website above.
VA borrowers can buy more expensive places. But for every $1,000 borrowed above the ceiling, the borrower must bring $250 of his or her own money to the closing table. Otherwise, it's a solid 100 percent financing.
Of course, borrowers still have to be able to afford the payments. But there's very little red tape. And another good thing: If the full amount of the eligibility benefit is not used, the remainder can be used to buy another house. Also, full benefits can be restored if the original property has been sold and the loan on it has been paid in full.
There's no free lunch, though. For nothing-down loans, first-time users pay a funding fee of 2.15 percent of the loan amount. For those who are reusing their entitlements, the charge jumps to 3.3 percent.
But if the borrower puts down at least 5 percent, the fee drops to 1.5 percent, and with 10 percent down, it slips to 1.25 percent. In all cases, the charges can be rolled into the loan amount.