At first glance, the idea of buying a house with a credit card seems irresponsible, if not impossible. While it’s technically possible to do this in very limited circumstances, it’s generally not a good idea, especially if you have cheaper options.
Whether you plan to use a credit card for a down payment on a house or for to buy a house in short, here’s what you need to know.
How to buy real estate with credit cards
In some situations, it may be possible to achieve this goal, especially if you live in an area where houses to renovate worth tens of thousands of dollars rather than hundreds of thousands.
You can also consider it if you’re having trouble qualifying for a traditional mortgage.
But title companies won’t swipe your card like you would at a grocery store. Merchant fees would be high and title companies do not consider credit cards as certified funds.
If you have a credit card with a high enough amount Credit limithowever, you can optionally withdraw a cash advance and then use those funds to wire payment or get a cashier’s check, which you can send to the title company to complete the transaction.
If you don’t have a single card with a high enough limit, you can apply for cash advances on multiple cards to meet your goal.
Why buying a house with a credit card is not a good idea
It’s certainly possible to buy cheap property with a credit card cash advance, but it’s usually not the best way to do it. Here’s why:
- It’s expensive. Credit card cash advances often carry higher interest rates than regular purchases, so you may pay a rate of around 20%. They also come with an upfront fee on top of that. “You’re digging yourself into a very deep hole before you’ve even started,” says Ruth Shin, founder and CEO of PropertyNest.
- You may not have enough available credit. Even if the house you’re buying is cheap, credit cards often have lower limits for cash advances than for regular purchases, so you may not be able to find the full amount.
- This can hurt your credit. If you manage to get enough with a cash advance, you’ll probably end up with a credit utilization ratewhich can hurt your credit score until you pay down the balance to a reasonable level.
- You will not have a grace period. Unlike purchases, credit card cash advances do not qualify for the standard Grace periodwhich means that interest begins to accrue from the date of the transaction.
- You will not earn rewards. If you’re considering a cash advance in order to earn rewards on purchase, forget it – cash advances aren’t eligible for rewards.
Can you pay a deposit with a credit card?
Although it is possible to buy a cheap house with a credit card, you cannot do the same with a advance payment on a mortgage loan.
This is because the main purpose behind a down payment is to demonstrate your investment in the home to your lender. If you borrowed your deposit via a credit card, you didn’t actually contribute anything. Also, mortgage lenders generally don’t like to see applicants take on new debt in the months leading up to the mortgage application process.
“Using a cash advance for down payment conveys insufficient reserves and is a red flag that a borrower is not qualified for the requested loan amount,” says Doug Perry, Advisor in strategic financing at Real Estate Bees.
Even if you try to withdraw the advance before you apply, mortgage lenders usually like to see several months of bank statements to understand the source of your down payment funds.
When can you use your credit card during the home buying process
While you probably can’t use a credit card to buy or put money on a house, you might be able to use your card for some expenses along the way that aren’t paid directly to the lender.
“Instead of using your credit limit to purchase a home, consider paying for other home buying expenses such as inspections, appraisals, attorneys, insurance, and moving expenses with your credit card,” Shin explains.
Other potential options include:
- Maintenance and repairs.
- Utility installation costs.
- New furniture and fixtures.
It is also possible to make mortgage payments with your credit card via a third-party payment service like Plastiq, but these services usually charge fees, which will likely cost more than the value you get in rewards.
Keep in mind, though, that it’s best to avoid using a credit card for these and other purchases unless you can pay for them in full each month. It’s also best to avoid using your card for anything that would require a cash advance or involve convenience fees that cancel out the rewards you’d earn on the purchase.
What to do if you’re having trouble getting a loan or down payment
If you’re wondering if you can buy a house with a credit card because you can’t get approved for a mortgageor if you’re having trouble making a down payment, there are steps you can take to remedy the situation.
With mortgages, for example, it may mean working to improve your credit before you apply. And if you are thinking of buying a cheap house to repair and sell it, you can consider other financing options, such as hard money loans, home loans for renovation or rehabilitation, fixed loans and reverse or even personal loans.
“Borrowers who are tight for down payment funds should consider low down payment home loans such as FHA loans,” says Perry, “or using gift funds from a family member if that’s an option.
Alternatively, you can claim down payment assistance if you are a first-time home buyer and have a low or moderate income. Additionally, some loan programs require no down payment, making it easy to get approved without a lot of money in the bank.
The important thing is that you take the time to research and consider all of your options to determine which ones will help you reach your goal without putting your financial security at risk.