Credit card points can give you cashback, flight upgrades, and gift cards, but what about the points you’ll get from buying a home? Can you even buy a house with a credit card in the first place?
In theory, you can purchase a home with your credit card. However, the process isn’t simple.
You’ll have to follow a few guidelines and the method isn’t as simple as how you would usually use your credit cards.
We’ll cover if you can purchase a home with your credit card in this article, including the pros and cons of doing so, and whether it is a good idea or not.
Keep reading to learn more about buying a home with your credit card!
Table of contents
- Can You Use a Credit Card to Purchase a House?
- Advantages of Buying a Home with a Credit Card
- Disadvantages of Buying a Home with a Credit Card
- Should You Use a Credit Card to Buy A House?
- The Bottom Line
- Frequently Asked Questions
Can You Use a Credit Card to Purchase a House?
If you live in a higher cost-of-living location, you may scoff at the concept of purchasing a home with a credit card. Credit limits don’t even go that high, right?
Remember that in some areas, homes can cost anywhere from $10,000 to $30,000. In these places, some individuals may have credit limits that reach these limits.
One example is the Visa Signature card. The highest limit accessible here is $500,000, though most consumers are likely to opt for much lower limits.
A person with strong credit and a good income would be able to access a larger credit limit capable of purchasing a home.
Now we’ve covered the credit limit issue, we need to get to the actual issue at hand.
Can you purchase a house with a credit card? Yes – but you should rethink doing so.
You can’t use your credit card to buy a home as you would buying groceries. Real estate closings usually occur at an agency or an office.
You’ll sign the papers here to settle ownership of the estate. The title company in question will manage the fund transfer required to finish the sale.
This is where the issue comes in with paying with a credit card.
Title companies only accept certified funds, eg. a certified check from a bank. This party will not accept a credit card as payment.
However, you can notify your credit card company and obtain a cash advance.
This advance will have a fee, sometimes as high as 5%, but this will be much less than the total price of closing costs and application fees.
After you obtain the cash advance, you can then buy a cashier’s check to bring to your closing appointment.
Now we can look at the pros and cons of using a credit card to buy a home.
Advantages of Buying a Home with a Credit Card
Avoiding Extra Costs
Mortgages have extra fees that will increase the price you’ll pay buying a home.
Using a credit card saves you from paying for mortgage application fees and any closing costs, which could add up to thousands of dollars.
Applying for a mortgage involves a lot of forms and documents you need to prepare.
Using a credit card involves much less. You won’t need to deal with the mortgage lenders and will save a lot of time in the process.
Shorter Repayment Schedule
As long as you can pay your credit card payments on time, you’ll pay off the money needed for a home a lot faster than you would when taking out a mortgage.
Your earlier mortgage payments will cover the interest, not the actual cost of the home.
Disadvantages of Buying a Home with a Credit Card
Income and Debt
Purchasing a home with a credit card involves much higher monthly payments than a mortgage does.
These can be as much as three times higher! These greater payments may harm your debt-to-income ratio. This is a crucial thing to consider as it can harm your credit score.
Lower Credit Score
A lower credit score can mean that you’ll have fewer lending opportunities in the future.
This can make it more difficult to be approved for home loans. Even if you do qualify for one, you won’t be likely to receive better terms and rates.
Maxed Out Card
If you buy a home with a credit card, you’re very likely to max out your card limit. This means that you won’t be able to use it until you pay it off.
Not having enough credit limit is another factor that harms your credit score.
Should You Use a Credit Card to Buy A House?
If you’re fortunate enough to pay off your credit card straight away, you may receive the benefits of using your card to buy a house.
Doing this assumes that you can get your hands on a large cash advance that can pay for the home.
There aren’t many instances where your cash advance will be as great as your card limit.
For instance, you may have a $20,000 limit, but your credit card company may only provide a $10,000 cash advance.
If you do decide to purchase a home with a credit card, you will likely need to obtain a cash advance before you make an offer.
Most sellers need to see proof of money before they accept an offer, particularly in a tough seller’s market.
Acquiring this means you’ll need to borrow from your card before even placing an offer on the home.
These interest payments will climb as you wait for your offer to be approved and you can settle up the closing.
If you can’t pay off your credit card immediately, opting for a mortgage loan is a much more sensible option. These will have much lower interest rates than credit cards.
If you do want to maximize your credit card rewards, you can take out a mortgage, but use your credit card to pay off your mortgage payments.
This isn’t accepted by everybody, but some lenders allow this as long as they use a third-party payment service.
These payment services often have a fee, but if your credit card rewards are better than the fee, you might make the most out of this method.
The Bottom Line
While you can use a credit card to buy a home, it isn’t the easiest way to do so. This method isn’t feasible for average home buyers.
Those that live in a smaller town with a smaller cost of living may be able to do so, but most people will find that standard mortgage loans are the better option overall.
Frequently Asked Questions
Can you use a credit card for a car down payment? Putting a car down payment on a credit card is an option that many dealers are open to. Dealers may be more willing to allow this type of payment for the total amount, or a partial amount, of your car’s down payment.
Mortgage lenders in general don’t accept credit cards. One reason is that mortgage lenders would incur transaction-related fees. Lenders also don’t like the idea of your paying one debt by taking on another debt. So this means you have to use a third-party service to pay your mortgage with a credit card.
A 45% debt ratio is about the highest ratio you can have and still qualify for a mortgage.