Can You Buy a House With a Credit Card?

Purchasing a home represents a significant financial undertaking for most individuals. The convenience and reward potential of credit cards often lead people to consider their use for large acquisitions. This natural curiosity extends to real estate, prompting questions about whether a credit card can facilitate the purchase of a house. While the idea of earning points or cashback on such a substantial transaction holds appeal, the realities of real estate finance present complexities.

The Impossibility of Direct Home Purchase with a Credit Card

Directly purchasing an entire home with a credit card is not a feasible option within standard real estate transactions. Credit card limits, even for those with excellent credit, are typically insufficient to cover the full purchase price of a property. Moreover, real estate closings require specific forms of payment that credit cards do not satisfy. Title companies and closing agents, responsible for handling transaction funds, mandate bank-certified funds such as wire transfers or cashier’s checks.

Sellers and real estate professionals generally do not accept credit card payments for the full purchase price. This is primarily due to the substantial merchant processing fees associated with credit card transactions, which can range from 2% to 3% of the total amount. For a home sale, these fees would represent a significant cost to the seller or agent. Furthermore, security concerns and the irreversible nature of real estate fund transfers make credit card payments impractical for the core transaction.

Using Credit Cards for Select Homebuying Expenses

While a direct home purchase with a credit card is not possible, certain smaller, related homebuying expenses may sometimes be paid using plastic. These can include appraisal fees, home inspection fees, and loan application fees. However, acceptance varies by vendor, and some may impose a convenience fee for credit card use. Earnest money deposits are occasionally accepted via credit card, though this is uncommon for larger sums and may incur fees.

For larger homebuying costs, such as a down payment, indirect methods involving credit cards can access cash. One method is a cash advance, where funds are borrowed directly from the credit card’s available line of credit. This cash can then be used for the required payment. However, cash advance limits are often lower than the overall credit limit, restricting the amount available.

Another indirect approach involves a balance transfer to a new credit card offering a promotional 0% Annual Percentage Rate (APR). Some balance transfer offers include checks that can be written to access funds for a down payment or other expenses. This strategy effectively moves debt from one credit line to another, providing a temporary interest-free period.

Key Financial Considerations for Credit Card Use in Homebuying

Utilizing credit cards for homebuying expenses, whether directly for small fees or indirectly for larger sums, involves distinct financial implications. Credit card Annual Percentage Rates (APRs) are significantly higher than those for traditional mortgages, with average credit card APRs ranging from 21% to 25%. Cash advances carry even higher APRs than standard purchases, and interest begins accruing immediately without a grace period.

Various fees are also associated with credit card use in this context. Cash advance fees range from 3% to 5% of the advanced amount, or a minimum fee of around $10, whichever is greater. Balance transfer fees are between 3% and 5% of the transferred balance.

The use of credit cards can also impact one’s credit profile and mortgage qualification. High credit card balances can significantly increase credit utilization ratios, which can negatively affect credit scores. Elevated credit card debt also raises an individual’s debt-to-income (DTI) ratio, a factor for mortgage lenders. Lenders assess an applicant’s ability to manage new mortgage debt in relation to existing obligations. Opening new credit lines or incurring substantial credit card debt shortly before applying for a mortgage or during the loan approval process can be viewed unfavorably by lenders, potentially jeopardizing mortgage qualification.