Can I pay mortgage closing costs with a credit card?

As a rule of thumb, mortgage closing costs will cost you about 2% to 5% of the loan amount. They add up to thousands of dollars. Generally, you pay them when you buy the house at closing.    

However, you pay for some of the costs before closing, like the home inspection, the appraisal report, and the annual homeowner's insurance premium.

Suppose you use a different lender for the mortgage. In that case, they might charge you additional fees before closing for locking the interest rate, generating a credit report, or originating the loan.

Many homebuyers ask, "Can I pay mortgage closing costs with a credit card?"

You may pay closing costs up to 2% of the loan amount by credit card before closing. For a $500,000 mortgage, the 2% maximum is $10,000. But before dreaming about exchanging the reward miles for a Hawaiian vacation, there are limits.

You may use a credit card to pay fees before closing. And the fees must be the types that homebuyers typically pay before closing.

For example, as I mentioned earlier, our customers often pay for the home inspection, the appraisal, and the annual homeowner's insurance premium before closing by credit card. The total for these services should be no more than about $3,000.

You have to pay the remaining fees at closing in cash, like the 

• tax service provider fees,
• title insurance,
• government taxes, and 
• prepaid property taxes, homeowners insurance, and interest.

Also, before charging closing costs to your credit card, consider how the additional debt will affect your loan approval.

The lender must account for any additional debts you take on after applying for the loan. After factoring in other credit card debt, the lender may change their loan decision. For example, let's say we approved your loan, but your debt-to-income ratio is at the limit. Next, you charge $3,000 in closing costs to your credit card. Then, after updating your monthly credit card payments, we find out that your debt-to-income ratio exceeds the limit. After that, we would have to deny your loan application.

Although the issue outlined is unlikely, it is possible. To ensure a smooth closing, be frugal with your credit cards after applying. And wait until after you buy the home to open any new credit cards or other debts.

You can't show up at the closing with a credit card to pay the closing costs. Instead, you'll need to pay the down payment and the remaining costs at closing.

A few days before the closing, NewCastle Home Loans will review the final figures with you. At that time, we will give you a bottom line. The bottom line is the amount of cash you will need at closing to settle the purchase.

Before the closing date, prepare a cashier check or a wire transfer from your bank to the settlement agent. The settlement agent is typically the title insurance company you and the seller selected to handle the closing.