"Down payments" credit card or loans?

Question

I have access to credit cards totaling over $20,000, but it occurs to me that getting a loan would be lower interest for a down payment. Thoughts? TIA!

Kevin Sobilo · Answer

@Champ Leong, usually credit cards limit the amount for cash advances. So, you would likely be able to access much less than the $20k credit line.

Also, if you are using conventional conforming loans, you would have a couple issues. One is that they require documentation on where the money came from. So, if it isn't "seasoned" (in a bank account for a couple months where they can verify that) then there needs to be documentation showing where it came from. In addition, running up your credit card balance would affect your credit score as well as your front/back end ratios. That may cause you to not even be qualified for a loan or the amount you need.

Talk to a mortgage broker or other lender in your area. Perhaps you can get a 2nd mortgage to cover some down payment and costs. There is also the ability to as the seller to pay for some closing costs as well.

Conventional conforming loans or FHA loans have low down payment options 3.5-5% as long as you're willing to pay PMI (private mortgage insurance).

You really should have some skin in the game to start investing. So, I recommend just saving some money to get started.

Evan Polaski · Answer

@Champ Leong, beyond the ability to actually access that $20k, and qualifying for loans given the source of the down payment, you will also likely hurt your credit score by pulling so much on the credit cards, your DTI ratio could get pushed out of whack thereby not allowing you to qualify for a mortgage.

Lastly, your payments for that advance will likely be very high.  If using for an investment property, I would venture that you will be cash flow negative on the asset, and if for a primary, even if you could still qualify for a loan, your monthly payments will be rather high.

Moral: Credit cards, in my opinion, are only to be used if you can pay off the balance each month, or for an absolute emergency.