Using a Credit Card for a Down Payment on a House: Pros, Cons and Alternatives

For many prospective home buyers, coming up with a down payment can be one of the biggest obstacles to home ownership. A typical down payment on a home is around 3-20% of the purchase price. With rising home prices in many markets, this can equate to tens of thousands of dollars that buyers need to have on hand before they can qualify for a mortgage.

Some buyers consider putting that down payment on a credit card as a way to access funds quickly without having to save up for years.

Yes, you can technically use a credit card for a down payment on a house. However, this method is not typically favored by mortgage lenders due to the high risk associated with it. Lenders may require additional documentation or even decline your loan application if you choose to use a credit card for your down payment.

There are several pros, cons, and alternatives to think through before swiping that card for your down payment.

Can You Use a Credit Card for a Down Payment on a House?

Technically, yes you can use a credit card to pay for a home down payment. The funds from a credit card can be used like any other source of funds for your down payment.

However, using credit card funds does not mean that those funds will be considered an acceptable source by all mortgage lenders. Some may consider it higher risk and require additional documentation or decline your loan application if you put the down payment on a credit card.

What Are the Pros of Using a Credit Card for a Down Payment?

The biggest advantage of putting your down payment on a credit card is accessing funds quickly without having to save up for an extended period. Other potential benefits include:

Earning rewards points or cashback with rewards credit cards
Building your credit profile by adding installment loan mix

Floating expenses until next statement to improve short-term cash flow
Leveraging low introductory APR offers on some cards

For buyers who only need a small amount for their down payment, these benefits may make credit cards an appealing option.

What Are the Cons of Using a Credit Card for a Down Payment?

However, there are also significant risks and downsides to keep in mind when using credit cards for a home down payment:

High interest rates – Credit cards typically have much higher interest rates than mortgages, quickly making the down payment debt expensive.
Mortgage approval difficulties – Lenders may deny loans or require proof of repayment if they see new debt right before closing.

Higher monthly payments – Repaying the credit card balance in addition to the new mortgage payment increases housing costs.
Lower homebuying power – Credit utilization lowers your credit scores, which could prevent mortgage approval.
Aggressive fees and penalties – Late fees, over limit fees, and other penalties make credit card debt even more costly if not repaid quickly.

For most buyers, the risks outweigh potential rewards of using credit cards.

How Can Using a Credit Card for a Down Payment Impact Your Mortgage Approval Process?

If you do opt to charge your down payment, be prepared for much more scrutiny during the mortgage application process. The lender will want to see details on how and when you plan to repay this new debt quickly:

Documentation of available funds or assets to pay off the balance

Proof of repayment history on any credit cards used
Signed statement that the card will be paid off at or before closing
Lower maximum debt-to-income (DTI) ratio thresholds

Even with documentation, some lenders may deny your loan application altogether if they see too much new credit card debt before closing. Be transparent with your loan officer to understand potential impacts.

What Are the Different Types of Credit Card Down Payment Loans?

If you’ve determined that a credit card is your best source of down payment funds, look for ones that offer intro 0% APR periods so you can float the balance interest-free. Products like the Chase Slate or Citi Simplicity card offer 0% for 12-21 months on purchases and balance transfers.

Alternatively, some credit card companies like SoFi offer special credit card loans specifically designed for down payments. These function like personal loans but allow you to draw funds directly to your card. Qualification and terms vary.

How Do I Qualify for a Credit Card Down Payment Loan?

To qualify for a down payment loan from a credit card issuer, requirements typically include:

Minimum credit score of 660+
Debt-to-income ratio under 50%

Solid income and employment history
Enough available credit line to fund the down payment
Strong credit history with low delinquencies

Even if you qualify, interest rates on these products tend to be higher than alternatives like personal loans or retirement account loans. Shop around for the best fit.

What Are the Requirements for Using a Credit Card for a Down Payment on a House?

At minimum, you’ll need the following to use credit cards for a home down payment:

Enough available credit line to cover the down payment amount

Ability to repay the balance quickly, usually within 90 days
Documentation proving you can pay off the card before or at closing
Down payment funds sourced only from existing limits, not cash advances

Willingness to accept higher scrutiny from lenders

Work closely with your loan officer to understand your lender’s specific policies on credit card down payments. Their requirements may be more stringent.

What Are the Best Credit Cards for Down Payments?

The best credit cards for down payments include:

Chase Slate® – 0% APR for 15 months on purchases and balance transfers
Citi® Double Cash Card – 0% for 18 months on balance transfers
Bank of America® Customized Cash Rewards – 0% for 12 months on purchases

Wells Fargo Reflect® Card – 0% for 18 months on purchases and transfers

Focus on cards with 0% promotional financing periods to avoid interest. Rewards cards can help offset some costs too.

Alternatives to Using Credit Cards for Down Payments

Given the risks and limitations of credit card financing, you’re often better off exploring other down payment funding sources:

1. Saving Money

Build up your down payment over time through dedicated savings
Take advantage of employer match retirement accounts like 401ks while saving
Invest windfalls like bonuses or tax refunds into your down payment fund

2. Borrowing From Retirement Accounts

Many 401k and IRA plans allow you to borrow against your balance
There are defined repayment schedules and low interest rates
No credit check needed since you borrow from yourself

3. Receiving Gift Funds

Ask family members to gift you money to put toward the down payment
Lenders allow gifted funds from relatives in most cases
No repayment needed but the gift must be documented

4. Applying for Government Assistance Programs

FHA loans only require 3.5% down payment for buyers with credit scores as low as 580
VA and USDA loans offer 100% financing options for qualifying buyers
Down payment assistance grants are available in certain areas

5. Taking Out a Personal Loan

Banks and online lenders offer installment loans for many uses, including down payments
More affordable rates than credit cards but requirements are strict
Loan proceeds can be used however you want including for your down payment

6. Exploring Seller Financing Options

Some sellers offer financing to buyers, taking over the mortgage
This may enable a lower down payment or alternative funding
Higher interest rates and stricter terms often apply

7. Considering Rent-to-Own Agreements

A portion of rent payments go toward the down payment over time
Allows you to slowly save up for the down payment while occupying the home
Strict contractual terms and higher long-run costs

Conclusion

Using a credit card for your home down payment may seem like an easy shortcut to homeownership. But in most cases, the risks and limitations make alternative options like saving, borrowing from retirement, gifts, or down payment assistance programs better approaches. If you do use a credit card, have a rock-solid repayment plan and be prepared for extra scrutiny from lenders. With smart planning and disciplined saving, you can reach your down payment goal and get approved for the mortgage you need.

FAQ

Can You Pay a PennyMac Mortgage With Credit Card?

No, PennyMac does not accept credit card payments for mortgages. This is due to the high transaction fees and risk of swapping low-interest debt for high-interest debt. However, third-party payment services like Plastiq can be used as a workaround, but they charge a transaction fee and have restrictions on the type of cards accepted.

Can You Pay Chase Mortgage With a Credit Card?

No, Chase does not allow mortgage payments to be made directly with a credit card. However, it is possible to indirectly use a credit card by withdrawing cash or using a cash advance, depositing this into another bank account, and then transferring the funds to pay the mortgage. This method may incur additional fees and interest charges.

Can You Pay Mortgage With a Capital One Credit Card?

No, you cannot directly pay your mortgage with a Capital One credit card as most mortgage lenders do not accept credit card payments. However, an indirect method is available through third-party payment services like Plastiq, which charges a processing fee of around 2.5% for facilitating the transaction between your Capital One card and your mortgage lender.

Can You Pay Your Wells Fargo Mortgage With a Credit Card?

No, Wells Fargo does not allow customers to directly pay their mortgage with a credit card. However, it is possible to indirectly use a credit card by transferring funds from the card to a checking or savings account, then using that account for the mortgage payment. This method may involve additional fees and potential impacts on your credit score.

Can You Pay Your Mortgage with American Express?

No, you cannot directly pay your mortgage with an American Express credit card. American Express’s cardmember agreement prohibits such transactions, categorizing them as cash advances ineligible for rewards or cash back. Some third-party processors may facilitate this, but they involve high fees and immediate interest charges that typically outweigh any potential benefits or rewards.

Can You Put Closing Costs on a Credit Card?

Yes, closing costs can be put on a credit card if the mortgage lender and title company permit it. However, this method may involve convenience fees and could lead to high interest charges if not paid off promptly. This approach can earn rewards or provide short-term financing but may negatively impact your credit score and accumulate debt.