Can You Use a Credit Card for Closing Costs?

Closing costs are various fees and expenses incurred by buyers and sellers during a real estate transaction. These costs arise from services required to complete the sale, such as loan origination, title services, property appraisals, and inspections. A common question among individuals preparing for a home purchase involves the use of credit cards for these payments. Understanding typical payment methods for these financial obligations is important for a smooth closing process.

General Restrictions on Credit Card Payments

For the majority of closing costs, credit card payments are generally not accepted. Lenders and title companies face several financial and regulatory reasons for this restriction. One concern involves the high processing fees, known as interchange fees, charged by credit card companies. These fees range from 1.5% to 3.5% of the transaction amount, and for large sums in real estate, they can be substantial.

Another reason for restrictions is the risk of chargebacks and disputes. Credit card transactions can potentially be disputed by the cardholder for up to 120 days under federal regulations like Regulation Z. This creates financial liability and uncertainty for the recipient of funds, which is undesirable in a real estate transaction where funds must be immediately available and irreversible. Compliance with anti-money laundering (AML) regulations, such as those under the Bank Secrecy Act, also plays a role. Large credit card transactions can raise red flags for fraud or illicit activities, requiring extensive due diligence that complicates the closing process.

The preference for “good funds” in real estate transactions is a reason for avoiding credit cards. Good funds are immediately available and irreversible, ensuring the transaction can proceed without delay or risk of payment reversal. Credit card payments, due to their dispute mechanisms and processing times, do not meet this standard.

Specific Closing Costs That May Allow Credit Card Payments

While credit cards are generally not accepted for major components of closing costs, some specific, typically smaller, upfront fees related to home buying may allow credit card payments. These include initial fees paid directly to service providers rather than through the title company at closing. For example, an application fee for a mortgage, which can range from $50 to $100, is sometimes payable by credit card directly to the lender.

Credit report fees, typically ranging from $30 to $60, are another small expense that might be paid with a credit card when ordered by the lender. Appraisal fees, usually between $400 and $800, and home inspection fees, often $300 to $600, are frequently paid directly to the appraiser or inspector. These individual service providers may have their own payment systems that accept credit cards, especially if payment occurs before the final closing day.

Earnest money deposits are an upfront deposit made when the purchase agreement is signed. While some real estate agents or escrow companies might accept credit cards for these deposits, it is less common for larger amounts and acceptance varies significantly. These smaller, separate payments are exceptions and depend on the specific policies of the service provider.

Accepted Payment Methods for Closing Costs

For the significant portion of closing costs, accepted payment methods ensure funds are immediately available and irreversible. Wire transfers are a primary method, allowing electronic movement of funds directly from your bank account to the title company or escrow agent. Verify recipient details directly with your title company or lender via a confirmed phone number, not through email instructions, due to wire fraud.

Wire transfers typically clear within a few hours on the same business day, making them efficient for closing. Banks may charge a fee for outgoing wire transfers, usually ranging from $15 to $50. Cashier’s checks and certified checks are also accepted because they represent guaranteed funds.

A cashier’s check is drawn on the bank’s own funds, while a certified check is a personal check that the bank has guaranteed by setting aside the necessary funds from your account. These checks provide assurance that the funds are available and will not be returned due to insufficient funds. Obtain these checks from your bank, ensuring the amount is exact as provided by your lender or title company. Arrange for these payments in advance of the closing date, typically 24 to 48 hours beforehand, to avoid any last-minute delays.