Can You Pay Closing Costs With a Credit Card?

A home purchase involves various expenses beyond the agreed-upon price, known as closing costs. These fees are paid at the culmination of a real estate transaction to finalize the loan and transfer property ownership. Common closing costs include lender origination fees, appraisal fees, title insurance premiums, escrow fees, and prepaid expenses such as property taxes and homeowners insurance. These costs typically range from 2% to 6% of the loan amount, representing a significant financial outlay for homebuyers. Many homebuyers wonder if credit cards can cover these expenses.

Lender and Vendor Policies

Direct payment of major closing costs with a credit card is generally not accepted by mortgage lenders, title companies, or escrow agents. This is primarily due to high processing fees, which can be several percentage points of the total amount. Lenders are reluctant to absorb these costs, especially given the thin margins on mortgage products. Concerns about potential chargebacks and regulatory requirements for “good funds” also contribute to this stance, as credit card payments do not guarantee immediately available and secure funds.

While major closing costs are not typically payable by credit card, some smaller, miscellaneous fees might be an exception. Application fees, credit report fees, and appraisal fees may sometimes be accepted via credit card by the specific vendor. Third-party service providers like home inspectors often accept credit card payments for their services. However, these individual charges usually represent a small fraction of the total closing costs, and their acceptance is at the discretion of the individual vendor.

Indirect Payment Methods

Given the limitations on direct credit card payments for most closing costs, indirect methods can be used to generate funds. One approach involves taking a cash advance from a credit card. A cash advance allows a cardholder to withdraw cash against their credit line, typically from an ATM or a bank branch. The cash obtained can then be used to cover various expenses, including portions of closing costs.

Another indirect method is a balance transfer to a checking account. Some credit card companies offer promotions that allow cardholders to transfer a balance, or even directly deposit funds, into their checking account. These funds become liquid cash in the bank account, which can then be used for closing costs. This method essentially converts a portion of the credit limit into accessible cash.

A third strategy involves using a credit card for everyday expenses, thereby freeing up cash in existing checking or savings accounts. By charging regular purchases like groceries, utilities, or fuel to a credit card, the cash that would have been spent on these items remains in the bank. This conserved cash can then be allocated towards the closing costs, allowing the homebuyer to manage their immediate liquidity more effectively. This approach leverages the credit card for its convenience in daily spending rather than for direct payment of large closing cost sums.

Associated Costs and Implications

Using a credit card for closing costs, whether directly or indirectly, carries financial consequences. Cash advances and balance transfers are subject to specific fees; cash advance fees typically range from 3% to 5% of the advanced amount, often with a minimum charge of $10 or more. Balance transfers usually incur a similar fee, commonly 3% to 5% of the transferred amount. These fees add directly to the overall cost of the transaction, diminishing any potential benefits like rewards points.

Interest rates on cash advances are generally much higher than those for standard purchases, often ranging from 22.99% to 29.99% or more. Unlike purchases, interest on cash advances typically begins accruing immediately, without a grace period. This means that even if the balance is paid off quickly, interest charges will still apply from the transaction date.

The impact on a borrower’s credit score is another consideration. Using a significant portion of available credit, especially through cash advances or large balances, can substantially increase the credit utilization ratio. A high utilization ratio, generally considered above 30% of the total credit limit, can negatively affect credit scores, which lenders closely scrutinize during the mortgage approval process. A lower credit score can lead to less favorable mortgage terms, including higher interest rates, or even jeopardize loan approval.

Taking on high-interest credit card debt for closing costs also increases the overall debt burden. This additional debt can strain a household’s finances, particularly when combined with a new mortgage payment. Lenders assess a borrower’s debt-to-income (DTI) ratio, and a higher DTI due to credit card balances could signal increased risk, potentially affecting loan eligibility. Relying on credit cards for such substantial expenses can create a cycle of debt, making long-term financial management more challenging.