Should You Use Credit Cards to Buy a Home?

There is no denying that America runs on credit. Many people use credit cards for the majority of their daily purchases. But one question that gets asked from time to time is if using a credit card to buy a home is a good idea.

If you have found a home that costs less than your available credit limit, it may be tempting to forego a traditional mortgage and just charge it to your card. While this option is certainly possible, there are a number of pros and cons to weigh before you swipe your card.

Pro: Eliminate Mortgage Costs

With a mortgage, you will end up paying additional fees like closing costs and application fees. Paying for a home with a credit card will eliminate these fess, lowering your total cost.

Con: Higher Monthly Payments

Buying a home with a credit card will make your monthly payments up to three times larger than what you would pay with a mortgage. This could hurt your debt-to-income ratio, making it difficult to apply for new lines of credit or loans in the future.

Pro: Less Paperwork

With a mortgage comes stacks of paperwork to fill out, and additional fees to pay toward the people processing that paperwork. Buying a home with a credit card eliminates that inconvenience, and could speed up the process considerably.

Con: Damaging Your Credit Score

Credit card debt is factored differently than debt from a loan or mortgage. In fact, credit card debt accounts for 30% of your FICO credit score. Having a large outstanding balance on your credit card will cause your credit score to drop, potentially making it difficult to borrow money in the future.

Pro: Faster Payback

It is likely that buying a home with a credit card means that you will be able to repay the debt faster than a traditional mortgage, because you will avoid paying the interest that makes up a majority of the early installments of your mortgage payment.

Con: Maxing out Your Credit

If buying a home with a credit card maxes out your credit, you face a few inevitable consequences. Your debt limit will increase, while your available credit limit will decrease. This also means that you won’t be able to use your line of credit if an emergency strikes, creating the potential for financial strain.

Ultimately, the decision to buy a home with your credit card is yours to make. Depending on your individual situation, the rewards may outweigh the risks. As the #1 realtor in Encinitas, I recommend considering all the pros and cons before making a decision that you could regret down the line. And if you need help along the way, I can help you through every stage of the process.    

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