There is no denying credit cards are one of the most versatile financial tools. The convenience and attractive rewards offered by many credit cards make paying for travel, groceries, and subscriptions simple and cost-effective.
Perhaps you’ve wondered how to use credit cards’ benefits for other, larger kinds of purchases, such as a house. It might surprise you to find out it is in fact possible to buy a house with a credit card. However, just because buying a house with a credit card is possible doesn’t mean it’s a smart choice.
- You can’t buy a house using your credit card directly.
- You can buy a house with a credit card if you take a cash advance on a credit card and transfer those funds to a certified check.
- Among the negatives of using a credit card to buy a house are high interest rates, no grace period on interest charges, a reduced credit score, and a reduced ability to borrow on that credit card account until the balance is paid down or paid off.
Is It Possible To Buy a House With a Credit Card?
Although it is possible to buy a house with a credit card, it’s not as simple as swiping your card and taking the keys. To start with, the average consumer doesn’t have a high enough credit limit to purchase a house in most places. According to Experian, the median credit limit across all credit cards for Millennials is just over $20,000. Compare this with the median home price even in a low-cost area such as Detroit (around $60,000 in 2022), and you can see how buying a home with a credit card isn’t a reality for everyone. Realistically, you’d need a positive financial history and strong credit score to purchase a fixer-upper home using a credit card.
Using this non-traditional method to purchase a home doesn’t mean you put your card down at the sale. Most sellers, representatives, and title companies will not accept a card as payment. They need to trust the funds are ready to be transferred to the seller with even state laws mandating the use of a certified check in the transaction.
The IRS requires all cash transactions greater than $10,000, including those made with travelers and certified checks, to be reported.
Because of this, you will need to take a cash advance on your credit card, use those funds to purchase a certified check at your bank, and then show up for the sale. But there are several things to note when reviewing a cash advance as a financial option:
- Credit card issuers charge a withdrawal fee on cash advances, typically up to 5%.
- Cash advance limits are smaller than your credit limit with 30% of your total credit limit as a good benchmark.
- Interest charges begin the moment you take out a cash advance.
Interest charges on a cash advance are a crucial point of consideration. Many credit card issuers charge a different interest rate for cash advances than they do for purchases. Sellers often want confirmation that you have the cash available before they accept an offer. You would need to take out a cash advance much before the sale, accruing major interest the whole time–up to twice the rate as a normal card purchase.
Pros and Cons of Using a Credit Card for a House Down Payment
Shorter repayment timeline
Less documentation needed
Increased credit utilization
Lower credit score
Fees and other costs
Shorter repayment timeline: A traditional mortgage could take as long as 40 years to repay, with the first few years of payments going to interest alone, not the principal balance. A credit card has a shorter repayment period, which may allow you to pay less interest if you have the money to power through the payoff.
Less documentation needed: Lenders want to take a detailed look into your financial history when applying for a mortgage. This means a lot of paperwork and review time. However, taking a cash advance on a credit card doesn’t need that level of documentation. You can withdraw the advance and purchase the certified check quickly.
Increased credit utilization: Buying a home on a credit card will use up a lot—or all—of your available credit. This directly affects your credit utilization ratio, which accounts for 30% of your credit score. This will harm your credit score, and leave you with less available credit for future purchases or for emergencies.
Lower credit score: Your increased credit utilization ratio will mean you have less available credit, and it will mean a lower credit score. A lower credit score limits your lending options.
Fees and other costs: A standard mortgage will come with fees and other additional costs—and so will financing your home purchase with a credit card. First, you will need to pay a cash advance fee the moment you withdraw the funds. This transaction also doesn’t come with a grace period (the period of time between the purchase and when interest begins to accrue), so you begin to pay interest on the advanced funds from the start—even while they are sitting in the bank, waiting for the transaction to close.
Other Ways To Finance Your Home Purchase
Considering the disadvantages, you should look into other forms of finance for purchasing a home. Things such as a traditional mortgage or home assistance loans are all options.
Traditional mortgage: A regular mortgage continues to reign supreme with its fixed rates, knowledgeable lenders, and often zero prepayment penalties.
Personal loan: If the home you’re interested in is on the cheaper side, you may want to consider applying for a personal loan.
Home assistance loans: Different locations have loan programs that make purchasing a home more affordable, such as those offered through HUD.
Grants: Some cities may offer grants if you are fixing up a historical property.
Should You Buy a House With a Credit Card?
Just because you can buy a house with a credit card doesn’t mean you should, but there are certain cases in which this method makes sense. You may be flipping a house on a hot market and can guarantee a sale. You may have enough accessible cash that you can quickly pay off the debt.
However, those circumstances are few and far between. For the average consumer, making this purchase on a credit card isn’t recommended—nor even possible. You should prioritize your financial wellness and consider homebuying when it’s more accessible.
Frequently Asked Questions (FAQs)
What credit score do I need to buy a house?
The ultimate score needed to buy a home depends on the method of purchase and the type of mortgage you’re applying for. You can get an FHA loan with a credit score as low as 500 (provided you can make a hefty down payment), a score of 580 and above will only require a down payment of 3.5% of the home’s price. For conventional loans, a minimum credit score of 620 to 640 is typical.
How do you prepare to buy a house?
Prioritize reviewing your finances when preparing to buy a house. Outline a budget, the amount you’re willing to put down, and the nest egg you should retain for unknowns. Once you have those outlined, start shopping for a loan immediately to understand your options.
Can I buy a house with no money down?
You need to put a down payment on a home purchase in most scenarios, but there are two ways that would eliminate that need. You could take out a government-backed loan through the USDA or VA if you meet the eligibility requirements. Or you could apply for specific down payment assistance programs that replace the cost.