Buying a house with a credit card seems impossible, right? It’s not. As long as you have enough credit available to cover the cost, you can borrow the money from your credit card and buy the house right away. But while you can achieve it under certain circumstances, we definitely wouldn’t recommend it.
How to buy a house with a credit card
If you live in a large metropolitan area, especially on the coasts, you might be wondering who might have a credit limit high enough to charge an entire house. But there are still many areas where you can buy a repairman for $ 30,000, $ 20,000 or even $ 10,000. A person with a long credit history, excellent credit rating, and good income could easily qualify for sufficient credit to cover such a purchase.
Of course, someone who fits that description would likely also qualify for a mortgage that would cost a lot less interest than a credit card.
But suppose you are determined to use a credit card. You can’t just walk up to the vendor and hand over your card. As a rule, real estate fences take place at the office of a securities firm or at a real estate agency. The buyer and seller, or their representatives, sit down to sign the papers and transfer ownership of the home. The title company also handles the transfer of funds.
The securities companies, however, will not take your plastic either. They require certified funds, which means you need a certified check from a bank.
So how would you use a credit card to buy the house? You will need to get a cash advance and then use that money to buy a cashier’s check. You would then bring that check to the close, and the house would be yours.
The problem of cash advances
Here’s why we don’t recommend buying a home this way, even if it is technically possible.
Getting a cash advance on your credit card can get very expensive. You will pay a fee to withdraw the money, up to 5%. This means that a $ 10,000 withdrawal would cost you $ 500 just to borrow the money from your credit card.
On top of that, the interest rates on cash advances are generally higher than the interest you pay on normal purchases – which in turn is considerably higher than the interest rate on a typical mortgage. . And the interest starts accruing the day you borrow the money.
Sometimes a seller will want to see proof of funds before accepting an offer. This gives some assurance that the deal will not fail. So you may need to borrow your credit card money sooner so you can show it on your account because you are paying double-digit interest all the time.
There is another obstacle you should be aware of. Let’s say you have a credit card with a limit of $ 30,000. You can easily buy an old house in a small American town for that amount. But in many cases, a card’s cash advance limit is less than its overall credit limit. If your overall limit is $ 30,000, you may only be able to withdraw $ 10,000 in advance.
So, if it is possible to use a cash advance for this purpose, it is quite difficult. You must have excellent credit to have a sufficiently high credit limit, and you should be prepared to pay exorbitant fees and interest, and you will need to check if your cash advance limit is lower than your overall credit limit. All of this, when there are better options out there.
More traditional financing options
It sounds boring, but there’s probably no better way to finance a home than with a traditional fixed rate mortgage. Your interest rate is locked in for the life of the mortgage, which means your payments don’t fluctuate, and in most cases, you can pay off the loan sooner if you have the extra cash.
While there are some loans that don’t require a down payment, it’s a good idea to save 20% if you can. This will save you from paying mortgage insurance.
And, no, you can’t use a cash advance from your credit card to get that 20% down payment. Mortgage lenders don’t like to see you incur new debt right before you buy a home, and because a cash advance carries such high interest and fees, it is likely to set off red flags.
Can you really afford the house?
If you can’t qualify for a traditional mortgage, it might be time to ask yourself why. You may need to spend time rebuilding your credit and saving a down payment before you are ready to own a home, and leave the creative financing to the experts. real estate investors.