Should You Use Your Credit Card for Mortgage Loan Fees?
As of September 1 you can use your credit card to pay certain mortgage loan fees if the loan will be underwritten by Fannie Mae.
You still may not use a credit card for any part of the down payment, but fees such as appraisals, credit report fees, origination fees, lock-in fees, and commitment fees are now allowed. The limit is 2% of your loan amount, so on a $150,000 loan, you could charge up to $3,000 on your credit card.
This may not be a smart move, for a couple of reasons. First, adding $3,000 to your credit card debt could change your credit scores just enough to move you out of the running for the best mortgage interest rates. Even one or two points in your credit score could make a huge difference.
Since your FICO scores are in part based on how much of your available credit you use, it would depend upon the balances you already owe in relation to the credit limits you carry. If you push any one card over the 30% range, it could have an adverse effect.
If you have several cards with no or low balances, you might consider spreading these mortgage loan charges among those cards rather than putting all of them in one place.
If you do put all the charges on one card you run the risk of having your credit limit lowered, which would have an even greater adverse effect on your credit scores. Credit card issuers are still allowed to drop your limit to the balance you owe – and until February they may even drop limits below the balance you owe. This could trigger an over-limit charge and a negative notation on your credit report.
Next, adding these charges when you’re well into the loan process can delay closing on your mortgage.
When you use your credit card for loan fees, your mortgage lender is required to do one of two things. He or she can verify that you have sufficient liquid funds to cover this in addition to your down payment and required reserves, or recalculate your debt to income ratios.
If the debt to income ratios were tight, the new debt could prevent you getting the loan. At the very least the new calculations will require the lender to give you a new truth in lending statement, and that requires a new waiting period before your loan can close. If you’re very close to a rate lock expiration, that could cause you to pay a higher interest rate on your mortgage loan.
