Can you buy a house with a credit card? Technically, you can. In this post, we’ll discuss the process of purchasing a home with a credit card and how to best prepare for it.
We’ll also cover some of the risks associated with this type of purchase. So, whether you’re considering using your credit card to buy a house or just want to learn more about the process, read on.
Can You Use a Credit Card for Buying a House?
Many people use their credit cards to buy a new car, and you can also use them to purchase a house! However, we wouldn’t recommend it. Why? Because most credit cards have limits on how much you can spend in one day.
For example, let’s say you want to purchase a home for $300,000. You can’t just charge the entire amount to your credit card all at once — you would quickly reach your daily limit.
And even if you could get around that by making multiple charges over several days, you would rack up a ton of interest charges. So, unless you have a 0% APR credit card with a very high limit, we wouldn’t recommend using your plastic to finance your home purchase.
How much can you put on a credit card when buying a house if you really want to purchase it that way? We would recommend a credit limit of at least $20,000.
Another thing to consider is that most credit cards have relatively high interest rates. This means that if you cannot pay off your credit card balance in full each month, you will accrue interest charges on your outstanding balance.
Over time, this can add up to a significant amount of money. On that note, we suggest you only use your credit card for a portion of the home’s purchase price and finance the remainder with a traditional or reverse mortgage loan.
How to Buy a House With a Credit Card
So, can you buy a house with credit card debt? As you can see, you can. However, you cannot simply hand your credit card over to the seller. Why?
First of all, the majority of real estate closings take place at an office or real estate agency. The process involves the buyer and the seller, or their representatives, sitting down to sign papers transferring property ownership.
Secondly, the title firm manages cash movement, and it won’t take your plastic. It will demand certified funds, which means you’ll need a bank-issued certified cheque.
In other words, you’d need to obtain a cash advance, after which you’d have to use the money to buy a cashier’s check. The closing would then take place, and the property would be yours.
The next question you may ask yourself is, “Can I use my credit card before the closing date on a house?” Yes, but only if you use it to get a cash advance.
Advantages of Buying a Home with a Credit Card
The idea of buying a house with a credit card probably sounds pretty irrational. After all, isn’t that what got us into the housing crisis in the first place?
But as it turns out, there are some advantages to using plastic to finance your home purchase. We are listing them below.
You Will Avoid Additional Fees
When you get a mortgage, all sorts of fees come along with it — appraisal fees, origination fees, points, etc. By using a credit card, you can avoid many of these fees entirely.
Can you use a credit card for closing costs on a house? It’s generally a good idea to use your credit card to reimburse some of your closing expenses.
You may also pay application fees, moving and furnishing costs, homeowners’ insurance, and other mortgage-related costs.
You Will Skip the Paperwork
Applying for a mortgage can be a long and tedious process. If you use a credit card, you can entirely avoid all of that paperwork.
Shorter Repayment Timeline
Mortgages typically have a repayment timeline of 30 years. You can repay your debt more quickly with a credit card — usually within 18 months.
Your next question, “Do I need a credit card to buy a house?” If you have two lines of credit, having a credit card isn’t essential.
Disadvantages of Purchasing a Home with a Credit Card
On the other hand, there are also some downsides to using a credit card to finance your home purchase. Read on to learn about a few.
Debt-to-Income Ratio
Buying a house with a credit card generally entails three times larger monthly payments than those required by a mortgage.
Your debt-to-income ratio is an important measure to consider when assessing your credit score. Higher monthly payments can damage your debt-to-income ratio, which is crucial if you want to have a good credit score.
Reduced Credit
If you have reduced credit, you’ll also have a harder time qualifying for home loans. Even if you do qualify, obtaining the greatest rates and terms might be more difficult.
Maxed Out Credit Card Limit
How much credit card debt is OK when buying a home? You should owe no more than 30% of your debt limit. For example, if your credit card limit is $10,000, you should not owe more than $3,000.
When you use a credit card to purchase a property, there’s a good chance you’ll run up your credit limit and be unable to use the card until you pay off the balance. A lack of credit limits will also affect your credit score.
Conclusion
As you can see, it is possible to purchase a house with a credit card, but it’s not advisable. There are many risks associated with using a credit card for such a large purchase, and it’s important to understand those risks before making any decisions.
If you decide to use a credit card to buy a home, make sure you can afford the payments and pay off your debt as quickly as possible.
FAQs
Can I buy a house with a debit card?
Yes, you can. However, at one time, consumers could use their debit cards for mortgage payments only when no other options were available. Because of the costs involved with debit card transactions, mortgage servicers are generally hesitant to accept debit cards as a legitimate payment option.
Can you buy an apartment with a credit card?
Technically, yes, you can buy an apartment with a credit card. However, there are some things to keep in mind before doing so.
For starters, using a credit card to buy an apartment can be very costly because most credit cards have high interest rates, which can add up quickly if you’re not careful.
Additionally, most apartments require a security deposit, and paying this with a credit card can also be expensive.
Can you buy a house with a credit card for points?
You can try to use your credit card points to buy a house, but we wouldn’t advise it because the value of points can fluctuate, and you could end up spending more than the house is worth.
Furthermore, using points can complicate the mortgage process, as most lenders will only accept cash or a check for the down payment.
Is it bad to have a lot of credit cards when buying a house?
While having a lot of credit cards with outstanding debt can hurt your credit score, it’s not necessarily a bad thing to have multiple credit cards if you’re planning on buying a house.
This is because lenders will also look at your credit utilization, which is the amount of debt you have compared to your credit limit. If you have a lot of available credit and are using a small percentage of it, that can actually be a good thing in the eyes of a lender.
Can you use a credit card for a downpayment on a house?
Yes, but only if you get a cash advance. You might even be able to buy the whole house if the property is cheap enough and your credit limit is high enough.
That said, there are a few advantages to purchasing a house with your credit card. You will avoid additional fees, skip the paperwork, and repay your debt more quickly.
So, can you buy a house with a credit card? Yes. Should you do it? It depends on various factors, including your credit score, financial situation, and goals.
