Among the hurdles that a borrower faces when applying for a mortgage is coming up with enough money for a down payment. But if there’s anything you should reconsider when dealing with it, it’s using your credit card funds to cover it.
Sure, there are low and no down payment mortgage programs that cater to those who couldn’t come up with a standard 20% down payment for a home.
But there are interested home buyers who don’t have enough funds to save up for that amount. Other than that, full-financing mortgages have specific qualifications and some could simply not meet those.
Which is why some borrowers look for ways to come up funds to be able to have enough to put down for a home. Others take advantage of down payment assistance programs that are made available through their local housing authorities.
And while there are quite a few ways to come up with money for a down, keep in mind that using your credit card to cover it wouldn’t be such a good idea.
It could increase your debt ratio
Swiping your credit card to put down money for your home isn’t exactly guaranteed funds. Because it adds up to your debt, your debt-to-income ratio would naturally be affected.
Your debt ratio plays a very important role in the mortgage process so this move would put more weight on your debt while your income does not. As a result, you’re going to end up with a higher debt-to-income ratio. And let’s face it, more debt could potentially spell more trouble for you.
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It also affects your credit score
Other than your debt-to-income ratio, your credit score would naturally be affected too. Whether it’s a big or small amount, putting more dent toward your credit score could affect your home buying process.
Keep in mind that your lender would typically pull your credit again towards closing your home loan. And your added debt would factor into your new credit score. If you’d end up crossing the threshold, you’d have a lesser chance to be eligible for the loan and thus making it more difficult for you to purchase the home.
Your funds need to be verified
Your lender makes a thorough verification before and after you apply for a mortgage through them. After all, they would want to make sure that you’ll have fewer risks as a borrower.
The funds that your lender verifies would usually have to be your bank and retirement accounts. But they would also verify your large deposits that are not tied to your income. It would be inadvisable to borrow money from your credit card then put it in your bank account as your own.
The Bottom Line
In the end, you have to keep in mind that as a borrower, you have to find ways that could help you purchase a home without hurting your credit and your debt ratio.
Also, these things can potentially give you more hurdles to deal with. The home buying process is already difficult so it’s only smart not to add more problems in the future.
All hope is not lost. There are so many ways to come up with funds for a down payment. Other than qualifying for a down payment assistance program, you can talk to your lenders about other options.
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