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Archive for July, 2015

Credit Union Vs. Bank: Which Should You Choose?

Many times, people get confused whether to invest in credit unions or banks. This is because both come with their own set of pros and cons. Often, it becomes difficult to understand the difference between these financial institutions because of the similar services offered by them. However, both differ from each other on many factors. While investing in a bank guarantees various facilities, one can become a member of a credit union if he wants to reap the benefits of better interest rates on deposits as well as loans.

However, credit unions open the door of their advantages only for their members, whereas banks are flexible in this regard, and allow anyone who is ready to pay the minimum deposit to become their customer. If you want to know more about the various factors that set both these financial institutions apart from each other, this Buzzle article will give you a comprehensive comparison list of the same.

– Interest Rates

Credit Unions
They have lower loan rates and higher deposit rates in order to return the earnings back to the members.

Banks
They have lower deposit rates and higher loan rates in order to make profits.

The Verdict: Credit Unions

– Products and Services

Credit Unions
Most of the credit unions have a traditional setup, and may not offer too many different products and services.

Banks
Due to competition among banks, they keep on introducing new products and services which prove beneficial for the customers.

The Verdict: Banks

– Customer Service

Credit Unions
They have a more informal kind of customer service, as there are limited number of members and employees. Customer service executives may know the members personally. They may not offer round-the-clock customer service or too many online services.

Banks
Banks have excellent customer service which works 24/7. They also offer a wide range of online banking services which makes transactions extremely easy for the customers. Though the customer service executives are formal in their approach, in most cases, problems are solved immediately.

The Verdict: Banks

– Ownership

Credit Unions
They are owned by members and not stockholders. As there are no outside members, and the directors also work voluntarily without any remuneration, you will benefit immensely from this kind of arrangement.

Banks
Customers of banks do not have any kind of ownership interest in the bank. Banks are often owned by investors who may not be their customers.

The Verdict: Credit Unions

– Membership

Credit Unions
Credit unions are not open for public and serve only their members. The eligibility requirements may also be very strict, and they restrict the number of members.

Banks
Banks are open to the general public. There is no restriction to the number of customers, in fact, banks try to get maximum number of customers.

The Verdict: Banks

– Profit Orientation

Credit Unions
Credit unions are not-for-profit financial cooperative institutions, and the earrings are distributed back to the members.

Banks
Banks are for-profit corporations which pay declared earnings to the stockholders.

The Verdict: Credit Unions

– Regulated/Insured By

Credit Unions
Credit unions are regulated by the Federal government or the State based on their charter. Credit unions are federally insured under the National Credit Union Share Insurance Fund (NCUSIF). It is stronger than the banks’ insurance fund.

Banks
Banks are regulated by the Federal government or the State regulators depending on their charter. Also, they are federally insured by the Federal Deposit Insurance Corporation (FDIC).

The Verdict: Credit Unions

Fees

Credit Unions
They have fewer service fees as compared to banks. They may charge late fees, but the amount goes back to the pool which provides loans to the members at lower rates. They sometimes even offer free balance transfer. Also, the minimum deposit requirement is very low.

Banks
Banks ensure that they profit by charging you fees for everything under the sun. Also, while opening an account, the minimum balance requirement must be of a considerable amount.

The Verdict: Credit Unions

– ATMs and Branches

Credit Unions
Credit Unions have limited resources like ATMs and a handful branches.

Banks
Banks have a large number of ATMs and branches present at different locations.

The Verdict: Banks

– More Money in Account

Credit Unions
They may have restrictions about the amount of money members are allowed to deposit.

Banks
There are no such restrictions about depositing money in banks.

The Verdict: Banks

– Prime Focus

Credit Unions
They put ‘people over profits’.

Banks
They put ‘profits over people’.

The Verdict: Credit Unions

– Restrictions

Credit Unions
As they are small institutions, credit unions may be traditionally inclined, and have lot of restrictions when it comes to giving membership, deposits, etc.

Banks
Banks are large and influential, and profit-oriented in their approach. This causes them to have lesser restrictions.

The Verdict: Banks

– International Reach

Credit Unions
Credit unions generally have a local reach, and may not be present at international locations.

Banks
Banks are present everywhere, and have a wide international reach. Even when you go abroad for a vacation, you know that your bank will have a branch there.

The Verdict: Banks

– Having a Say

Credit Unions
Members have the right to run for election of the board. Irrespective of the amount of deposit, members can run for election as well as cast a vote. They can also voice their opinions.

Banks
Customers do not have a voting right. Only stockholders can vote, based on the number of shares they own. Selection of new directors is often done by current directors, or by a large block of stock acquisition. Customers cannot make suggestions or bring about changes in the operations.

The Verdict: Credit Unions

– Board of Directors

Credit Unions
Members who volunteer to become Board of Directors are chosen after an election. One is not paid to serve on the board.

Banks
The board members of a bank are paid, and may not necessarily represent its wide customer base.

The Verdict: Credit Unions

– Membership Focus

Credit Unions
Credit unions want to work for the benefit of the members. They focus on consumer loans, savings, and providing quick and good services to members.

Banks
Banks work to earn profit and not for the benefit of the customers. Hence, they focus on commercial loans, accounts, and services that help in multiplying the income for the bank.

The Verdict: Credit Unions

– Resource Sharing

Credit Unions
Credit unions share their resources like service centers and ATM centers for the convenience of the members.

Banks
The cut-throat competition among the banks does not allow them to share their resources.

The Verdict: Credit Unions

Some credit unions also offer several contests and perks which give the winners prizes with financial benefits, and even dividend payments in certain cases. However, due to their small size, they do not have the influence and power enjoyed by banks on a federal scale. It also becomes difficult for them to handle large-scale business clients. Now that you know about the pros and cons of credit unions and banks, make your investment decision based on your requirement.

Things to Consider Before Applying for a VA Loan

A VA loan is a mortgage loan established by the United States Department of Veterans Affairs for providing home loan benefits to veterans, active servicemen, surviving spouses, and their families. This does not mean that the VA gives out the loans. The loans are provided by private lenders, while the VA guarantees a certain part of the loan. This helps get better cost benefits and terms of repayment. Also, as they do not have mortgage insurance, you are able to save a lot of money every month. Remember that these are not one-time loans; in fact, these loans are reusable and you can avail another, once you pay off the earlier one. The best part about this loan is that if you fail to pay your mortgage, the VA will step in and negotiate with the lender for better terms. Also, pre-payment of dues does not attract any penalty. Hence, because of all these benefits, availing this loan can be very advantageous for you. However, you must know certain things before you plunge into one. For example, there is an occupancy rule which is applicable to the VA loan.

Things You Should Know Before Applying for a VA Loan

✧ Primary home will get preference over your second home.
In all probability, lesser important loans for second home, vacation homes, and beach houses which will not be occupied by you, may not get approval easily. The main purpose is to cater to the housing requirements of the veterans or their family. It does not support giving away loans for additional homes which are more or less a luxury or investment-oriented. Hence, do not forget to mention that you will be occupying the house after a short duration of time. Also, they are usually given for a single home, and a fixed upper home or working farm may not get approved for the loan.
✧ Civilian co-borrower’s share of VA loan will not be VA guaranteed.
If you want to apply for a joint loan, you are entitled to do so. However, if you are a veteran and your co-borrower is a civilian, the latter’s portion of loan will not be guaranteed by the Department of Veterans Affairs. However, the VA will guarantee the loan if the co-borrower and you were previously or currently recruited in the military. Your spouse or another veteran will be acceptable co-borrowers. Remember that in joint VA loan applications, the civilian co-borrower will have to complete a number of formalities and submissions to the lender. This may include his income, tax documents, credit report, details of any other property owned with the veteran, etc.
✧ Your credit rating will impact your loan.
Although the Department of Veteran Affairs will not exercise a credit score requirement, lenders are on the lookout for a credit score that is 620 or higher. Like the other types of loans, it is important that you have a good credit score for availing the benefits. As the lending institution will go through your credit history, it is important that you ensure it is in good condition. Ensure that you do not open any new credit accounts and pay your bills on time. Veterans who are deployed on work to distant locations have support networks who can help them pay their bills. Hence, do take help of this support and laws. It is advisable that you get a copy of your credit report with all the three agencies and correct any errors in it.
✧ Getting preapproval for your loan will save a lot of time.
It is advisable that even before you start house hunting, apply with the lender for a preapproval. This will help you in three ways: (i) you will understand the limit of the mortgage loan for which you will be qualified, and hence, restrict your house hunt within that range; (ii) it will also help understand about the interest on the loan and whether you will be able to afford the same; (iii) you will also be able to work on enhancing your credit score, if your loan’s preapproval is rejected. This will give you a buffer to work on your credit and reapply once it is within the required range. Just imagine, if you apply for a loan directly after hunting a house and get rejected for the same, you will regret it.
✧ Having a Certificate of Eligibility and DD Form 214 is a must.
You require two of the most important veteran documents. You will need to have a Certificate of Eligibility (COE) for proving that you are eligible to avail a VA-backed loan. It will not only qualify you to avail the loan facility, but will also tell your lender that you have met the necessary stringent prerequisites set by the VA and submitted the necessary evidence to prove the same.
– The form for this is available at the eBenefits portal on benefits.va.gov.
– You also have the option of applying through your lender through the Web LGY system.
– Spouses will have to apply through VA Form 26-1817 and send it by email.
– Similarly, DD-214 is a document that is handed over to a veteran while leaving military, and helps him to claim the benefits associated with it. Hence, you will require a DD-214 which will act as a proof for your military service. You can apply for this form at the National Personnel Records Center (NPRC).
– If you are still in active duty, you will require a statement which needs to be duly signed by your unit commander. You will also have to submit the names and contact details of your employers for the last 2 years.
✧ You can avail loans in spite of bankruptcy.
Many people face bankruptcy these days owing to reasons that are beyond their control. For example, death or sickness of a family member, loss of job or income, divorce, etc., can cause a person to file for bankruptcy. However, if you have filed for bankruptcy and are wondering if you will still qualify for this loan, the answer is a Yes. All you have to do is wait for two years from the discharge date of your bankruptcy to avail the benefits of the VA home loan. If the Department of Veterans Affairs believes your reason of bankruptcy was genuinely out of your control, it will reduce the term of 2 years for you. In the meanwhile, ensure that you rebuild your credit and have a stronger financial position. Remember that even if your VA loan was foreclosed previously, you are entitled for the home loan benefits.
✧ There is an occupancy rule which you will have to follow.
According to this rule, the primary VA loan borrower will have to shift into the house within the reasonable time which is mostly 60 days after the loan is closed or the house is completely built. You should not delay occupying the house by more than 12 months. If a person is deployed to a distant location, his spouse is the only relative who can occupy the home. You can show a record of continuous residence by providing the bills of various services.

Remember that a VA loan comes with a funding fee, which will be approximately 2% of the loan amount. Ensure that you have the right debt-to-income ratio, important documents, and a good credit score in order to gain the maximum benefits.