Can you buy a house with a credit card? It isn’t a very common question, but sometimes people wonder whether you can buy a house with a credit card. This is a fair question, after all, you can certainly buy cars with credit cards (I did). The answer, of course, is yes it is possible to buy a house with credit cards. But in this article I will discuss the obstacles you may face, and then I will explain the only time I feel it would be wise to do this type of “creative financing”.
Obstacles You May Face When Buying a House Using Credit Cards
- Credit Limit–Let’s face it, houses aren’t cheap! So that poses a problem for people who have low credit limits of only a few thousand dollars. The average person would have to max out every single card they owned, and then still wouldn’t have enough. This doesn’t apply if you are going to pay off a portion of the remainder house loan, or if you have a credit card with no limit (which I will address below). So this alone would be enough to stop most people from trying this.
- Minimum Payment–The minimum payment on most credit cards is between 2-3%. So if your minimum payment is 3%, and you borrowed $100,000 for a house, that means your monthly payment would be at least $3,000 (not including interest). Wow. My mortgage is just under $600, so I am definitely coming out better. Again, there are exceptions, which I will discuss below. But if your minimum payment is too high, you could find yourself is serious trouble fast.
- Interest Rates–Let’s face it, credit cards have terrible interest rates in most cases. You can expect to have somewhere between 5-15% on average. A mortgage, in contrast, will likely be much lower than credit card rates. My mortgage is less than 5% fixed, so that is great.
- Getting the Funds–In order to buy a house, the escrow company would need to accept credit cards. Many often require a cashier’s check during closing (for legal reasons). So this could be yet another obstacle. You could always call a title/escrow company and ask. Of course, there are ways around this (such as a balance transfer deposited into your checking account, or by using convenience checks). But there are often fees with those options that could amount to high charges.
- Credit Card Companies May Not Like It–Credit card companies actively monitor your credit, which means that if they see bizarre activity or overspending, they may lower your limit out of the blue. So you need to watch for sudden things like that.
- It Could Hurt Your Credit Score–With a big house on your credit card bill, it looks like you have a massive pile of debt. That could really hurt your credit score if you keep that kind of balance for long! So if you wanted to turn and get a mortgage, it may be hard. After all, would you want to loan money to someone who has $100,000 in credit card debt? Didn’t think so. So keep that in mind.
When I Think a Person Could Buy a House with a Credit Card, and It Makes Sense
Given the above reasons and obstacles above on why you may not want to try this, there are a few small situations where using a credit card could work (or even be a good idea). Here are a few exceptions (remember, always consult a legal professional for advice before doing this).
- For the Points–If you have enough cash to pay this off within the month that you buy it, you could potentially rack up a very nice cashback or points bonus! So if you are wealthy enough to pay it off, and won’t get charged ridiculous fees in the process, then go for it!
- Avoiding Bank Processes-When getting a mortgage, there is a lot of paperwork, appraisals, etc. you must do. By purchasing a house outrigiht with credit cards, you could probably avoid the majority of this work and greatly speed this process up. So if there is a good deal on a very cheap fixer upper and you don’t have all the cash, you may consider doing something like this if you can afford it and want to avoid the mortgage process. You can then later get a mortgage (assuming you can get approved), and then pay off the credit card loan with the mortgage loan. However, this is risky, and I would only do it if I had enough cash to support myself if something goes wrong.
- You are paying off a Loan–Let’s say you only have $20,000 left on your mortgage principal, you could use credit cards to pay off that remainder balance, and then just pay the credit cards. There are reasons one may do this (and I will probably do this when mine gets paid down sufficiently). First, you now own the deed and house, with no bank that can forclose on you, make you pay escrow, etc. Second, you can sometimes lower your payments without having to refinance once it gets down to this point. Third, if you get a zero percent introductory card, you can use this to avoid interest if you were planning to pay it off within a year or so anyway. Again, I will probably do this and I can’t wait to have my mortgage paid off. Also, make sure you can lock in a great interest rate!!
- You Partially Pay with Credit–Let’s assume you can get cash, and want to only finance $10,000-$30,000 to buy a house. You could use a credit card to do this. Again, just make sure you don’t get hammered with interest or fees in the process.
So those are the few exceptions (and there are some), of the circumstances I can think of where it would be advantageous to use a credit card to buy a house. Otherwise, a mortgage is probably going to be a far better option (at least until you pay it down enough). So I would only do something like this if you could get through all of the obstacles, and it was a financially sound decision.