Buying a house is a major financial decision– for many people, it’s the largest purchase they’ll ever make!
Putting together the resources to pay for a house, or even just come up with the down payment, can be a stressful experience. If you have a decent line of credit available to you, you might be wondering whether using your credit card to help with your house purchase is a viable option.
We’re here to shed some light on this subject to help you make a better-informed decision when it comes to buying your very own home.
Interest rates
Credit card interest rates are notoriously high, often ranging from 15% to 30%. A high interest rate may not be an issue if you’re a credit cardholder who is able to quickly pay off the purchases that you make with your card– but unfortunately, if you’re looking to use a credit card to purchase your home, it’s unlikely that you’re going to be able to pay it off quickly enough to avoid accruing interest.
The interest on such a large purchase would quickly add up, and would most likely lead you into an overwhelming amount of debt.
Additionally, credit cards often have variable interest rates that can increase over time, making it difficult to predict future payments.
Fees and Charges
During your time as a credit cardholder, you’ve probably come across some transaction fees– in addition to balance transfer fees and annual fees. If you use your card to purchase a house, these fees will add up quickly, making it even more expensive and difficult to pay off!
Credit Card Limits
All credit cards have a limit of some kind. Usually this limit is determined by your credit history.
Typically, credit card limits are much lower than the cost of a house. Even if you have a high credit limit and a great credit score, it’s unlikely that your card limit will be enough to cover the entire cost of the house.
You might be able to make a down payment, or pay for some of the closing costs, with your credit card– but it’s definitely not a viable option for the entire purchase.
Credit Score Impact
There are several factors that contribute to your credit score. Payment history is an important one. If you’ve historically struggled with paying your bills on time, your credit score has most likely suffered as a result. Additionally, late or missed payments and delinquent accounts can negatively impact your score.
Another factor in determining your credit score is your credit utilization ratio– meaning, the amount of credit you’re using in comparison to the amount that you have available.
Making a purchase that’s very large– like a house!– would cause your credit utilization to increase dramatically, which would then make your credit score drop.
If you opened a new credit card just for making this purchase, your credit score would also be negatively impacted, since opening a credit card requires a “hard inquiry” into your credit.
Other home financing options
There are plenty of other financing options available that make a lot more sense than using a credit card.
A mortgage loan is the most traditional method of financing a house. These kinds of loans offer much lower interest rates than credit cards, and allow for much longer repayment periods. For example, you might be able to get a 30-year fixed mortgage loan, which would mean that your interest rate would stay the same for the entire repayment period.
Need help with the details of your home purchase?
It’s very important to do your research and compare the different financing options available to you, in order to find the best one for your specific financial situation.
We do not recommend using a credit card to buy a house. While it’s technically possible to use your card to pay for at least part of a home purchase, the very high interest rates, credit limits, fees, and charges– plus the resulting negative impact on your credit score!– make it an unwise choice.
The realtors at Edge are prepared to help walk you through all of the steps you need to complete before purchasing a house. You don’t have to figure it out all on your own– give us a call today!