The three main sources of mortgages and how they differ
You can get a mortgage from a bank, a credit union, or a mortgage company (also called a mortgage broker or lender). Each type operates differently, charges different fees, and offers different speed and flexibility. The "best" one depends on your credit score, how much time you have, whether you want to shop around easily, and what kind of loan you need.
Banks are the most familiar option. They take deposits from customers and lend that money out as mortgages. Credit unions are member-owned cooperatives that also lend to members, usually at lower rates but with stricter membership rules. Mortgage companies do not take deposits — they originate loans and then sell them to investors, which means they move faster but have less flexibility on terms.
No single type is universally "best." A bank might offer the lowest rate if you have excellent credit and a large down payment. A credit union might beat that rate if you are a member and have been for a while. A mortgage company might close in 21 days when a bank needs 45. The choice comes down to what matters most to you.
Key Takeaways
- Banks offer stability and familiar service but typically charge higher rates and fees than credit unions, especially if your credit is below 740.
- Credit unions usually have lower rates and fees for members but require membership, may have loan limits, and move more slowly than mortgage companies.
- Mortgage companies close faster (often in 21 to 30 days) and let you lock rates immediately, but they sell your loan after closing, so your servicer will change.
- You should get quotes from at least one bank, one credit union (if you are a member), and one mortgage company to compare actual rates and closing costs.
- The difference between the lowest and highest quote for the same loan can be $3,000 to $8,000 in closing costs alone, so shopping is worth the time.
Banks: Familiar but often more expensive
Banks are the default choice for many people because they are everywhere and you may already have a checking account there. That familiarity comes with a cost. Banks typically charge higher rates and fees than credit unions because they have higher overhead — physical branches, more employees, and shareholder profits to fund.
Banks do offer some real advantages. They usually have no membership requirement, so you can walk in and start the process immediately. They often have more loan products (jumbo mortgages, portfolio loans, renovation mortgages) than smaller lenders. If you have a relationship manager at the bank, you may get faster answers to questions during the process.
Banks move at a medium pace — usually 30 to 45 days to close. They are less likely to lock your rate immediately; many require you to lock within 10 days of application. If your credit is below 700 or your debt-to-income ratio is high, a bank may decline you outright, whereas a mortgage company might still work with you (at a higher rate).
Credit unions: Lower rates if you are a member
Credit unions consistently offer lower mortgage rates and fees than banks, sometimes by 0.25 to 0.5 percentage points. That difference adds up to thousands of dollars over the life of the loan. The catch is membership — you must join the credit union before you can borrow, and membership rules vary widely.
Some credit unions have open membership (anyone can join). Others require you to work for a specific employer, live in a specific county, or belong to a specific organization. A few require you to be a member for a certain period (often 30 days to one year) before you can take out a mortgage. Check your employer, your county, your school or university, your union, or your military service — you may already be may be able to access to join one.
Credit unions typically move slower than banks or mortgage companies — often 45 to 60 days to close. They may have loan limits (some will not lend more than $500,000 or $750,000). They are less likely to offer jumbo mortgages or specialized products. But if you are a member and your loan fits their standard products, the rate savings usually make the wait worthwhile.
Mortgage companies: Speed and rate locks, but your loan will be sold
Mortgage companies exist only to originate loans. They do not take deposits and do not keep mortgages on their books. Instead, they close your loan and sell it to an investor (often Fannie Mae, Freddie Mac, or a bank) within days or weeks. This model lets them move fast and lock rates immediately.
A mortgage company can often close in 21 to 30 days, sometimes faster. They will lock your rate the day you apply, with no waiting period. They typically have fewer restrictions on credit score or debt-to-income ratio than banks, so if you have a lower credit score or higher debt, you may find a mortgage company more willing to work with you (though at a higher rate). They also tend to have lower upfront fees than banks.
The trade-off is that your loan will be sold after closing. This means the company you close with will not be your servicer — the company that collects your monthly payment. Your new servicer will be a different company, and you may not know who it is until after closing. Some people dislike this; others do not care. You have no choice in the matter with a mortgage company.
How to compare quotes from all three types
The only way to know which lender is actually cheapest for you is to get quotes from at least one of each type. Do this within a two-week window so the rates are comparable. You will need to provide the same information to each lender: your income, assets, credit report authorization, and the property details.
When you receive quotes, compare the Loan Estimate form, which is required by law and shows the interest rate, loan amount, monthly payment, and all closing costs. Do not compare rates alone — closing costs vary widely and can be $2,000 to $8,000 different between lenders for the same loan. Look at the total cost: rate plus closing costs.
Ask each lender whether the rate is locked and for how long. Ask whether there are any lender fees you can negotiate. Ask what happens to your loan after closing — will it be sold, and if so, to whom? Write down the answers so you can compare them side by side.
Special cases: When one type makes more sense than the others
If you need to close very quickly (in under 30 days), a mortgage company is usually your only option. Banks and credit unions rarely move that fast. If you have an excellent credit score (760+) and a large down payment (20%+), a bank may offer you a competitive rate because you are low-risk. If you are a longtime credit union member, the credit union will almost always be cheapest.
If you have a credit score below 650 or a debt-to-income ratio above 50%, a mortgage company is more likely to work with you than a bank. If you need a jumbo loan (over $766,200 in most areas), a bank or a large mortgage company is more likely to have the product; many credit unions do not lend that high. If you want to keep your loan with the same company long-term and build a relationship, a bank or credit union is better than a mortgage company.
What to watch out for when comparing lenders
Some lenders advertise a very low rate but hide the cost in fees. The Loan Estimate will show this, but you have to read it carefully. Look at the "Lender Credits" line — if it is negative, the lender is charging you extra. Look at the "Origination Charge" line; this is the lender's main fee and varies widely. A rate that is 0.25 points lower but costs $2,000 more in origination fees may not be a better deal.
Watch for lenders who pressure you to lock your rate immediately or who claim they can close in 10 days. Legitimate closings take time for appraisals, title searches, and underwriting. If a lender promises something that sounds too fast, ask them to put it in writing. Also be cautious of lenders who will not provide a Loan Estimate until you have submitted a full application — by law, they must provide one within three business days of your application.
Frequently Asked Questions
Can I switch lenders after I have started the process?
Yes, you can switch at any point before closing. You are not locked in by submitting an application. However, switching costs time — the new lender will need to order a new appraisal and restart underwriting, which can add 10 to 14 days. If you are close to closing, switching may not be worth it. If you are early in the process and find a significantly better quote, switching is usually worth the delay.
What does it mean if a lender says they will sell my loan?
It means after you close, a different company will own your mortgage and collect your monthly payments. This is normal and happens with most mortgages. Your loan terms (rate, payment, length) do not change. The new servicer must follow the same rules as the original lender. Some people prefer to keep their loan with one company, but most borrowers do not notice or care about the change.
Why do credit unions have lower rates?
Credit unions are nonprofit and member-owned, so they do not have shareholder profits to fund or as many physical locations to maintain. They pass those savings to members in the form of lower rates and fees. They also tend to have lower default rates because members are more invested in the institution. The trade-off is stricter membership rules and sometimes slower service.
Should I use a mortgage broker instead of going directly to a lender?
A mortgage broker is a middleman who shops multiple lenders on your behalf. They can save you time if you want one person to handle the comparison. However, brokers earn a commission from the lender, which can increase your costs. You can get the same quotes yourself by calling banks, credit unions, and mortgage companies directly, and you will not pay a broker fee.
What if I have bad credit — which type of lender should I use?
Mortgage companies are most likely to work with credit scores below 650. Banks usually require 680 or higher. Credit unions vary widely — some will work with lower scores if you are a member, others will not. Get quotes from all three types and see who will work with you. You will pay a higher rate, but the rate difference between lenders can still be significant even in the subprime range.