Can you game credit card rewards and mortgages?
Can you rack up credit card rewards when you buy a house or pay the mortgage? I’m a novice when it comes to maximizing credit card points, so I asked some experts for advice. I was surprised by what I found.
Charging the down payment
You’re buying a house and you have the cash in your bank account to make a down payment. What about charging the down payment to your rewards credit card, then paying off the balance immediately?
Not gonna happen.
“What stops it is that Fannie Mae says you can’t borrow the down payment from a credit card,” says A.W. Pickel III, president of the Midwest division of AmCap Mortgage. Sure enough, it’s right there in Fannie’s selling guide: “Under no circumstances may credit card financing be used for the down payment.”
Fannie Mae and its frenemy Freddie Mac are the mortgage giants that set the rules. Freddie also prohibits charging the down payment.
“You’re not the first person to bring up that question, because I want to do it too. I want to earn points,” Pickel says.
Mortgage lenders scrutinize the sources of your money, and they’ll spot it if you move money around in a way that seems (to them) shady. Trying to charge the down payment = shady.
The cash advance route
What about taking a cash advance against your card, making the down payment with that money, then immediately paying off the debt?
- First of all, a cash advance almost surely won’t earn you miles or rewards points. It’s not a regular purchase.
- Second, it would be expensive (because of cash-advance fees and a higher interest rate with no grace period).
- Third, it would make you look more indebted than you really are — a no-no while you’re in the middle of getting a home loan.
“If you’re in the mortgage process and you tap a credit line, that could actually sink your mortgage,” says Mike Chadwick, president of Chadwick Financial Advisors.
The good news is that you can charge some of your upfront homebuying fees to a credit card. It’s OK with Fannie and Freddie if you charge the lender’s origination fee, commitment fee or lock-in fee. You can charge the appraisal, credit report and flood certification fee to your card, too. Fannie Mae limits these charges to 2 percent of the loan amount; Freddie Mac limits it to 2 percent of the loan amount or $1,500, whichever is greater.
Charging the monthly mortgage
You probably can’t charge your monthly mortgage payment to your rewards card. I haven’t found any mortgage servicers that allow it. Mortgage servicers are the companies that collect your payments and distribute the money to investors, insurance companies and the taxman. You don’t choose your servicer; the lender does.
Even if you got lucky and ended up with a mortgage servicer that allowed you to charge payments, you would have to pay a surcharge, Pickel says, because “you’re asking the servicer to pay the credit card fee.”
Such a surcharge might be in the neighborhood of 2.75 percent, or $27.50 for a $1,000 house payment. And the card would probably count it as a cash advance, which comes with its own fees. Not worth it even if you find a way to do it.
Collecting miles the regular way
When I ran the above ideas past Aaron Aggerwal, he shot them all down. “I always recommend looking at your rewards programs to find ways to maximize value,” says Aggerwal, assistant vice president of credit cards for Navy Federal Credit Union. He prefers to maximize value by following the rules. That’s the way I am, too. Ugh, such a rule-follower.
From his experience as a recent homebuyer, Aggerwal recommends using card rewards programs when you make the inevitable trips to big-box hardware stores such as Lowe’s and The Home Depot. Naturally, Aggerwal recommends a Navy Federal card that offers 1.5 percent cash back on purchases.
Trust me: If you’re buying a house for the first time — with a yard and a driveway and all — you’re going to spend a fortune buying drills, rakes, trash cans, Roundup, caulk and countless other items.
Another way to rack up miles is to automatically charge some regular household bills to your cards, then pay those costs in full every month, Aggerwal says. He’s talking bills for cable, gas, electric, and if you’re old-fashioned like me, landline telephone.
What I learned
It’s difficult to game the real estate and mortgage system to maximize your credit card rewards. But you can charge monthly bills and those one-time expenses that come with buying a house. Time for me to get an airline-miles card and start charging away.
Get thee to the Beehive State
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Here are the 10 cities most dominated by millennial home shoppers and some popular neighborhoods in each metro.
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Mortgage rates this week
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