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Can You Pay Mortgage Closing Costs With a Credit Card?

Obtaining a mortgage loan to buy a home comes with additional costs and charges, and closing costs are always included in these expenses. But can you pay mortgage closing costs with a credit card?

Can you pay mortgage closing costs with a credit card? The answer is yes, but it’s not recommended, as the card balance will be factored into the debt-to-income ratio. However, you can use your credit card to cover some other costs, like different common fees outside of closing costs, as long as they are within 2% value of the loan.

A man holding a card over a POS

Your credit card may come in handy for some of the costs which are not part of the closing ones, but to cover the closing costs, you need to find another approach. Let’s consider all the solutions you can come up with.

Can You Pay Mortgage Closing Costs With a Credit Card?

If you’re wondering whether you can pay your mortgage closing costs with a credit card, the short answer is – maybe, and only partially so. While some lenders may allow you to use your card for some of the charges, it’s generally not recommended – and there are a few good reasons why.

For one, paying your closing costs with a credit card will likely mean incurring interest charges (unless you have a 0% APR card and pay off the balance in full within the intro period). And secondly, using a credit card could potentially jeopardize your mortgage approval if your lender deems it a sign of financial instability.

If you’re set on using a credit card to cover some of your closing costs (remember that mortgage points are not included,) be sure to run the numbers first to see if it makes sense for your situation. And remember, you can always ask your lender if they’re willing to work with you on alternative payment options. Now, let’s explore wiser alternatives.

A man holding a credit card

Be Creative When Covering These Costs

Paying for closing costs is often one of the most challenging parts of buying a home or mortgaging land. Fortunately, there are a number of ways to finance these costs, including:

  • Using a personal loan is one of the ways you can cover these fees. Personal loans usually have lower interest rates than credit cards, so this can be a good option if you can qualify.
  • Borrowing from family or friends is always an option. If you have someone who is willing to lend you the money for closing costs, this can be a good solution. Just be sure to draw up a contract so that everyone is clear on the terms of the loan.
  • Negotiating with the seller may help you cover the fees on closing. In some cases, you may be able to negotiate with the other party to have them pay some or all of your closing costs. This is more common in situations where the market is slow, or the seller is motivated to sell.
  • Perhaps the best and easiest way to go about it is to pay in cash or cashier’s check if you have either available. This means you can simply pay for your closing costs upfront. It is often the best option, but it’s not always possible.
  • Another possibility is getting a grant or assistance from a government program. There are a number of programs that can provide you with grant money or other assistance to help with closing costs. Check with your local housing authority or search online for programs in your area.
  • If you’ve opted for an FHA loan (Rocket Mortgage offers them, for example), you can roll all the closing costs into the loan. The downside is that the monthly installments will increase, as well as the mortgage amount. With FHA and VA loans, it’s also possible to have the lender pay for all these fees. However, it typically means you will have a higher interest rate.

Additional Ways to Cover the Fees on Mortgage Closing

It’s good to know just how much you need to pay for the closing costs. But knowing how much you should pay is one thing, and coming up with a substantial amount is another. However, the table below offers some additional ways you can cover these costs.

Tapping into 401(k)It isn’t what’s mostly recommended, but it might be the only solution to avoid going into further debt
Save the tax refundTax refunds might be considered as bonus money, so you can put it to good use and cover the fees
Create a homeownership fundYou might already have a fund on the side, and closing costs might be just the right reason to use it

You Can Always Plan Ahead and Save for the Purchase

In truth, none of us can venture into the home-buying process and everything it implies without saving into a home-buying fund. But what we mostly concentrate on is saving enough for a downpayment, a few monthly mortgage installments, and additionally covering the moving expenses.

What we tend to forget is to save some money for closing costs, too, right until we get surprised with the sum. Depending on the region and the lender, closing expenses usually vary from 2% to 5% of the home loan amount. But don’t get overwhelmed because there are a few things you can do ahead.

What You Can Do Ahead of Time

Depending on the type of home loan you choose, your down payment might be lower than what you expected. However, this is something you should discuss with your loan officer. You should work together toward meeting your financial goals and decide which loan will suit your situation best.

Your moving expenses can be greatly reduced if you relocate by yourself or with the help of your family and friends. However, the wisest solution might be to shop around for the most reliable moving services because some companies offer discounts if you opt-in for the whole relocation package.

A girl with her head down on a desk

Understand All the Costs Before You Take a Mortgage Loan

The key to predicting all the costs and fees associated with a mortgage loan is to understand the process itself. Like the fact that a mortgage isn’t a revolving credit, but rather installment credit or which life insurance is best for a home loan. So, before you sign the closing documents and finalize the deal, consider all the aspects carefully and with caution.

Before you lay down your signature, ask for the “cash to close” number, which features the down payment along with the closing costs in one sum. Knowing that number can help you prevent any unnecessary unpleasant surprises.