Can You Buy A House With A Credit Card?

It’s possible to buy a house with a credit card, but it’s an unconventional approach to short-term funding for such a large purchase. It’s also not done primarily because the limits on credit cards are usually too low to cover a home purchase. It’s usually best to get a mortgage loan to cover a home purchase rather than owing the credit card company with higher interest rates.

If you’re planning to buy a home and have considered whether a credit card could help you do that, it’s wise to consider alternatives. Keep reading to learn why you wouldn’t buy a house with a credit card and what you can use instead.

Why You Shouldn’t Buy A House With A Credit Card

Buying with a credit card may seem like an attractive option, especially if you have a high credit limit. After all, credit cards are often easier to qualify for than mortgages, and it would be nice to skip strict requirements.

However, credit cards aren’t appropriate for buying a home for several key reasons:

• May not be allowed: When you buy your home, the title company facilitating the closing may require a certain type of payment, such as a cashier’s check, wire transfer or another bank-certified form of payment. You can’t simply bring your credit card to the closing and ask them to swipe it for the payment.
• Expensive interest rates: Credit cards have higher interest rates than most other forms of debt. In November 2023, the average credit card account had an interest rate of 21.47%. That’s more than triple the average mortgage rate of 6.49%. And because credit cards have compounding interest, it simply wouldn’t be realistic to pay down your balance with such a large total.
• Not enough available credit: Most people don’t have a high enough credit limit on their credit card to make a purchase for hundreds of thousands of dollars. In fact, the average credit limit in 2022 was $28,929.80, according to the credit bureau Experian. Though it’s possible to ask for an increased credit limit, you almost certainly wouldn’t be approved for enough to buy a home.
• Damages your credit: Even if you were able to get a high enough credit limit to buy a home, it would likely have a significant negative impact on your credit. An important factor in determining your credit score is your debt balances and credit utilization ratio. Buying a home with a credit card would result in a high balance and utilization, which would decrease your credit score, making it difficult to make large purchases in the future.

Using A Cash Advance To Pay For A House

You may not be allowed to swipe a credit card to buy your home at the closing, but you may have heard of a cash advance. A cash advance is essentially pulling money from your credit card, borrowing cash instead of using the card to make a purchase.

A cash advance could be a way to work within a title company’s requirements on the payment types you can use to buy your home. The cash is transferred to your bank account, and you can then get a cashier’s check for the price of the house.

While this is technically possible, it’s not particularly feasible. First, the same downsides still apply, including the high interest rate and too low of a credit limit. Additionally, cash advances also tend to have a withdrawal fee and higher interest rates than credit card purchases, which would make your home purchase even more expensive. You could pay upward of 30% interest.

Alternative Methods Of Financing Your Home Purchase

Because of the unique nature of homes, there are only a few financing options that are appropriate.

Mortgage Loans

A mortgage loan is the most popular way to buy a home. It’s an agreement between you and a lender where the lender gives you the money needed to buy a home in exchange for monthly payments with interest. And if you don’t repay the loan, the lender can take your home.

There are several types of home loans. The most popular type of loan is a conventional loan. However, there are also government loan programs to help low-income borrowers, borrowers with low credit scores and veterans buy homes with more favorable terms.

Mortgages have many key benefits, including low interest rates, high loan limits and long repayment terms.

Owner Financing

Another option for buying a home is owner financing, also known as seller financing. In this type of agreement, you don’t get a loan from a traditional lender. Instead, the seller finances the purchase, which may also come with risks.

You make installment payments to the seller, just as you would on a traditional mortgage, however, seller financing typically has a much shorter repayment term and ends with a balloon payment for the full remaining balance due at one time.

Owner financing is only used in very select situations. It’s usually used when a buyer can’t obtain traditional financing. Additionally, it requires that a seller have no mortgage they have to repay and the financial security to postpone getting the full value of their home. You’ll also need to rely on the seller to apply your payment to the mortgage.

Buying A House With A Credit Card: FAQs

Whether you can buy a home with a credit card is a common question. Below, you can read the answers to other frequently asked questions on this topic.

Can you use a credit card for a down payment?

In most cases, you can’t use a credit card to pay for the down payment on your home. Lenders generally don’t allow you to use borrowed money for your down payment since it largely defeats the purpose of making a down payment at all (for you to have a financial investment in the home). Plus, lenders require funds to be in a personal bank account for 30 – 90 days before closing.

Can you make a mortgage payment with a credit card?

Mortgage lenders often prohibit borrowers from making payments with credit cards, and some credit card issuers may also prevent you from doing so.

What credit score do you need to buy a house?

The credit score needed to buy a house depends on the type of mortgage you’re applying for. You need a credit score of at least 620 to qualify for a conventional loan. However, you may be able to get a government-backed loan with an even lower credit score.

The Bottom Line

If you’re someone who loves to swipe your credit card for every purchase, you may be disappointed to learn you can’t do the same for your home purchase. There are several reasons you can’t buy a home with a credit card, including title company restrictions, high interest rates and limited available credit.

A mortgage is a far better tool to buy a home. And thanks to the variety of loan programs available, most people can find one they’re eligible for. If you’re ready to buy a house, check out your mortgage options today.