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Can I pay mortgage closing costs with a credit card?
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You can use your credit card to pay some of your closing costs when buying a home. But there are limits. I'll give you the details in this article.
As a rule of thumb, mortgage closing costs are about 2%-to-5% of the loan amount. They add up to thousands of dollars. Plan on paying most of the fees at closing when purchasing a home.
However, homebuyers can charge some fees to a credit card before closing.
Which closing costs can I pay with a credit card?
Homebuyers can pay certain closing costs by credit card, such as:
- Home inspection
- Appraisal report
- Homeowner's insurance premium
- Interest rate lock
- Credit report
But there are limits. Whether you can pay closing costs with a credit card depends on the lender and the following rules.
- You can pay costs by credit card before closing, not at closing. And the fees must be customary, the types that homebuyers typically pay before closing.
- The closing cost you put on your credit card may not exceed 2% of the loan amount. For example, if your loan amount is $350,000, you could charge up to $7,000.
- You must have enough money in your bank account to cover the charges.
In Chicago, homebuyers usually hire a home inspector to inspect the property. An inspection report costs around $500.
Next, your lender will ask you to pay for the appraisal report upfront. An appraisal report is about $450, depending on the lender, property, and loan type.
Then, a few days before closing, pay the homeowner's yearly insurance premium. The cost varies depending on the property type, location, and insurance company you select. Insurance for a $350,000 loan on a Chicago home costs about $1,200 yearly.
Suppose you paid $2,150 upfront by credit card. In this case, we would check your bank statement to ensure you have enough cash to cover these charges.
At closing, you pay the remaining costs by cashier's check or wire transfer. Check out our Loan Estimate Explainer to understand your closing costs when buying a home.
Book time with a mortgage expert. Ask questions, get straight answers, and find out how to start on your home loan.
Will additional credit card debt affect my loan approval?
Additional credit card debt can potentially affect your loan approval. So, before charging closing costs to your credit card, consider how it will affect your debt-to-income ratio (DTI).
The lender must account for any additional debts you take on after applying for the loan. They typically monitor your credit through the mortgage process to see recent activity and ensure you still qualify for the loan. The lender may change the loan decision after factoring in other debts.
We approved your loan, but your debt-to-income ratio is near the limit.
Then, you charge $3,000 in closing costs to your credit card. After updating your monthly credit card payments, your debt-to-income ratio exceeds the limit.
We may ask you to pay off debts before closing to qualify for the loan or deny your loan application.
To ensure a smooth closing, be careful when using credit, and don't open new accounts after applying for a mortgage. Instead, wait until you buy the home to open new credit cards or other debts.
Feel confident about buying a home. Get a verified mortgage pre-approval letter from NewCastle Home Loans so you know you're ready to buy.
Can I use credit card points to pay closing costs?
You may use reward points to pay closing costs if you convert them and deposit the cash into your bank account. Depending on the deposit size, the lender may ask you to verify the source. So keep the paperwork proving you cashed in the reward points.
Using credit card points for closing costs is not a standard practice, and acceptance may vary depending on the specific circumstances and parties involved. Communicate with your lender to ensure they accept your method of paying closing costs.
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