Can I Use My Credit Card While Buying a House?

The process of buying a home involves numerous financial transactions, leading many prospective homeowners to consider using credit cards for various expenses. While leveraging credit card rewards or simplifying payments can be appealing, credit cards play a very limited and complex role in purchasing a house. Understanding where and how credit cards can be appropriately used, and where they cannot, is essential for a smooth home-buying journey and to prevent pitfalls that could jeopardize a mortgage approval.

Using Credit Cards for Major Home Purchase Costs

Using credit cards for substantial home purchase expenses like down payments, earnest money deposits, or closing costs is generally not feasible. Mortgage lenders and title companies do not accept credit cards for these large sums due to several reasons. Processing fees, often ranging from 1.5% to 3.5% of the transaction, are a significant factor these entities are unwilling to absorb. Additionally, transaction limits on credit cards often fall well short of the thousands or tens of thousands of dollars required for these payments.

Lenders also have strict requirements regarding the source of funds for down payments and closing costs, known as “seasoning.” Funds must be present in a borrower’s bank account for a specified period, usually 60 days, to demonstrate they are legitimate and not newly acquired debt. Credit card advances or loans do not meet this “seasoned” criterion and are considered unsecured debt, which lenders view as a significant risk. Fannie Mae, for example, explicitly states that credit card financing cannot be used for a down payment.

Using a credit card for these major costs would introduce a substantial debt burden with high interest rates. This immediate increase in debt contradicts the financial stability lenders seek and could negatively impact mortgage qualification. Even if a third-party service allows a credit card payment for a mortgage-related fee, a convenience fee of 2% to 3% is usually applied, making it an expensive option. Lenders prohibit credit card use for core home purchase funds, preferring verifiable sources like bank accounts or cashier’s checks.

Using Credit Cards for Ancillary Home Buying Expenses

While major home purchase costs are largely off-limits for credit card payments, credit cards can be used for numerous ancillary expenses. These costs include home inspection fees, appraisal fees, and loan application fees. Buyers might also use credit cards for moving expenses, purchasing new furniture or appliances, or covering initial minor repairs and utility setup fees after closing.

Paying these expenses with a credit card can offer convenience and the benefit of earning rewards points or cashback. However, caution and responsible financial management are important. If a mortgage application is in progress, pay off any credit card balances for these expenses quickly to avoid accumulating interest and to keep credit utilization low. This helps maintain a favorable financial profile.

Some closing costs, such as the initial homeowner’s insurance premium or certain commitment fees, may also be payable by credit card before the closing date. However, confirm with the lender or title company which fees can be paid this way and if any convenience fees apply. Even if credit card points are redeemed for cash to cover these costs, lenders may still require documentation to verify the source of the funds.

Credit Card Activity and Mortgage Qualification

Credit card activity can influence a borrower’s mortgage qualification and the interest rate they receive. Lenders scrutinize credit reports and financial statements throughout the mortgage process, from application to closing. Any new credit inquiries, increased credit utilization, or high balances can raise red flags.

A new credit card application results in a “hard inquiry” on a credit report, which can temporarily lower a credit score. Since credit scores are a major factor in mortgage approval and interest rates, even a small dip could impact loan terms or eligibility. Lenders prefer to see a credit utilization rate below 30%, so carrying high credit card balances can signal financial over-reliance and negatively affect a score.

Credit card balances directly impact a borrower’s debt-to-income (DTI) ratio, a key metric lenders use to assess repayment ability. The DTI ratio compares monthly debt payments to gross monthly income, and most lenders prefer a DTI of 36% or lower. Even minimum monthly payments on new credit card debt can increase this ratio, potentially making a borrower ineligible for a desired loan amount or type. It is prudent to avoid opening new credit accounts or making large purchases on existing cards during the mortgage application period.