Can You Put Closing Costs on a Credit Card? Pros, Cons and Alternatives

Buying a new home is an exciting yet stressful process. Once you’ve found the perfect house and your mortgage has been approved, you still need to pay the closing costs to finalize the purchase. These fees typically range from 2-5% of the home’s price and cover expenses like title insurance, appraisal fees, and more. 

Can you put closing costs on a credit card? Yes, you can put closing costs on a credit card if your mortgage lender and title company allow it. However, this method may involve convenience fees and could lead to high interest charges if not paid off promptly. It’s beneficial for earning rewards or short-term financing but can negatively impact your credit score and lead to debt accumulation.

For some homebuyers, putting these closing costs on a credit card can be tempting to earn rewards or get short-term financing. However, this strategy also comes with risks. In this article, we’ll explore the pros and cons of charging closing costs to a credit card and provide alternatives to consider.

Can You Pay Closing Costs With a Credit Card?

The first question many homebuyers have is whether you can pay closing costswith a credit card at all. The answer is maybe. Some mortgage lenders and title companies accept credit cards as payment, but many do not. 

You’ll need to verify with your lender and title company ahead of time if they allow credit card payments for closing costs. Be aware that convenience fees may apply, ranging from 3-5% of the total charges.

What Are the Pros of Paying Closing Costs With a Credit Card?

If your lender permits it, here are some potential benefits of putting closing costs on a credit card:

1. Convenience

Using a credit card means you don’t have to coordinate paying from multiple accounts. The entire amount can be charged to one card.

2. Rewards and Points

Many credit cards offer robust rewards programs, including cash back, travel miles, and more. Charging thousands in closing costs could earn you a nice payout.

3. Short-Term Financing

You’ll have a grace period before interest kicks in, allowing you to pay off the balance over time. This can help maintain cash reserves.

What Are the Cons of Paying Closing Costs With a Credit Card?

However, there are also considerable downsides to keep in mind:

1. High Interest Rates

The average credit card interest rate is around 15-20%. If you carry a balance, interest charges add up quickly.

2. Potential for Debt Accumulation

It can be tempting to make minimum payments on large balances. This leads to growing debt and interest charges over time.

3. Impact on Credit Score

A high credit utilization rate can lower your credit score. Plus, applying for new cards also causes hard inquiries.

4. Not All Lenders Allow It

As mentioned, many lenders prohibit credit card payments for closing costsdue to processing challenges.

What Are Some Alternatives to Paying Closing Costs With a Credit Card?

Given the drawbacks, you may want to consider other options to cover closing costs:

1. Seller Concessions

Ask the seller to cover a portion of closing costs in the purchase agreement. This effectively reduces your out-of-pocket amount.

2. Lender Credits

Your lender may offer credits towards closing costs that you don’t have to repay. Shop around for the best deals.

3. Saving and Budgeting

Save money ahead of time so you can pay cash at closing and avoid debt entirely. 

4. Government Assistance Programs

First-time homebuyers may qualify for down payment or closing costassistance through government agencies. 

5. Loans From Family or Friends

Borrow from those you trust and set up a repayment plan with no interest.

Should You Use Your Credit Card for Closing Costs?

In general, it’s best to avoid charging closing costs to a credit card if possible. The interest rates are simply too high if you can’t pay it off immediately. Also verify if your lender allows this option in the first place.

However, if you can pay off the balance during the grace period and earn rewards, it may make sense in some situations. Just have a plan for paying it off quickly.

How to Find a Credit Card That Covers Closing Costs?

If you do want to charge closing costs, look for a new credit card with an intro 0% APR period so you can avoid interest. Cards with large sign-up bonuses can help offset the charges as well. Compare both factors to maximize rewards and minimize interest.

Also consider balance transfer cards with a 0% promotional rate. This gives you over a year to pay off the balance interest-free in most cases. Just be sure to make payments on time to avoid deferred interest. 

How to Decide if Using a Credit Card for Closing Costs Is Right for You?

Here are a few tips to determine if paying closing costs with a credit card aligns with your financial situation:

• Review your credit score and utilization ratio. Will a large balance cause problems?
• Calculate interest costs based on your card’s APR and grace period. Is it affordable? 
• Do you have a solid plan to pay off the balance within the promotional period? 
• Are you disciplined enough to avoid racking up more debt on the card?
• Compare rewards earned versus interest paid. Is it cost-effective?

Carefully weighing these factors can help you make the right decision for your unique needs and budget. The bottom line is avoiding long-term interest charges. 

Conclusion

Paying closing costs with a credit card can be convenient but also risky. While you may earn rewards, high interest expenses can quickly negate any benefit. Consider all alternatives and have a repayment plan to minimize financial impact. Weigh the pros and cons carefully before charging these fees to a card.

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