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When you purchase a home, you must pay closing costs, which are the fees the lender charges to recoup loan processing costs. These can add up to a hefty sum, typically 3% to 6% of your mortgage amount.

Typically, you can take out a personal loan to cover those closing costs and help you across the finish line of a property purchase. You can often tap other funding sources as well. Take a closer look at the pros and cons of using a personal loan for closing costs, plus the alternatives, so you can decide what’s best for your needs.

What Are Closing Costs?

Closing costs are processing fees that you pay to your lender, either as the buyer or seller in a real estate transaction:

•   Buyers: Buyers typically pay between 3% and 6% of the total loan amount in closing costs. Buyers must pay this amount out of pocket, so it’s important for them to have a plan for how they’ll access the money before they get to the closing table.

•   Sellers: If sellers contribute to closing costs (say, to negotiate a home sale), those fees usually get taken out from the sale proceeds.

Here’s an example: If you plan to buy a home with a $300,000 loan, as the buyer, you’ll need to bring between $9,000 and $18,000 to the closing table. If you were the seller, you’d see that amount taken out of the costs you’d pocket from the sale.

Fees Associated with Closing Costs

Closing cost fees may include:

•   Application fee: Lenders sometimes charge a one-time fee for borrowers to submit a loan application.

•   Credit report fee: A credit report or credit check fee covers the cost to dig into your credit report, which shows your credit history. Your lender uses the information it uncovers to decide whether to approve your loan and how much they’ll lend you.

•   Origination fee: You pay this fee to the lender to process the loan application.

•   Appraisal fee: A fee paid to a professional to appraise the home based on an evaluation to determine its fair market value.

•   Title search: A title search looks into public records to determine who actually owns the property and who has liens on the property (for example, an unpaid contractor’s lien for work done on the home).

•   Title insurance: Title insurance protects you from financial loss and legal expenses in case the home has a bad title.

•   Underwriting fee: Underwriting is the process of reviewing your finances to determine the risk of offering you a mortgage, and the fees cover this process.

•   Property survey fee: Property survey fees cover the cost of checking the boundaries and easements of a property. This process shows exactly where the property’s perimeter is and what the property includes.

•   Attorney fee: You will probably need to hire a lawyer to review the terms in your purchase contract and handle your closing.

•   Discount points: Discount points are a way to balance your upfront costs and your monthly payment. If you use points to pay more upfront, you’ll likely have a lower interest rate, meaning that you could pay less monthly and over your loan term.

•   Homeowners insurance premiums: Homeowners insurance provides financial protection if your home undergoes a disaster or accident. You must typically show your lender that you have paid homeowners insurance.

•   Mortgage insurance: If you have a down payment of less than 20%, you will often have to pay mortgage insurance, a fee per month that protects your lender if you were to default. You’ll also have to pay a version of mortgage insurance on Federal Housing Administration (FHA) and U.S. Department of Agriculture (USDA) loans. You may have to pay these insurance fees with your closing costs in addition to your monthly payments, particularly for the FHA and USDA loans.

•   Property tax: Homeowners pay property tax to state, county, and local authorities for schools, roads, and other municipal services. You may have to pay a portion of your property tax at closing.

•   Homeowners association (HOA) fees: If you plan to move to a neighborhood that has an HOA, or an organization that makes and enforces rules for a neighborhood, you may owe HOA fees at closing. The seller may pay these on a prorated basis.

•   Per-diem interest: Per-diem interest refers to the interest a lender charges for the days between a closing date and the first day of your billing period.

•   Transfer tax: State or local governments often charge real estate transfer taxes, meaning that they charge when properties transfer ownership.

•   Recording fee: State and local governments charge recording fees to legally record your deed, mortgage, and other home loan documents.

Note that this isn’t an exhaustive list of closing costs — you may be on the hook for other fees as well.

Can You Use a Personal Loan for Closing Costs?

First, it’s important to understand how a personal loan works. It is usually funded by a bank, credit union, or online lender. You can typically use the money however you want — there aren’t as many restrictions on personal loans compared to, say, student loans. After you receive a personal loan, you pay it back with regular, fixed payments (with interest) over a specified term.

As mentioned above, you can use the cash as you see fit. So, yes, you can use a personal loan for closing costs. However, you can’t use it for a down payment, and you must tell your lender that you’ll go this route and borrow to pay the closing costs. The lender will include it in your debt-to-income (DTI) ratio, which is the amount of debt you have relative to your income.

Applying for a personal loan can involve prequalifying with several lenders and comparing them, gathering required documents (ID, proof of address and income, Social Security number, and education history), filling out the loan application, and receiving your funds after approval. You may be able to get a personal loan in one to three days.

As you shop around for funds, you’ll likely want to consider what credit score you need for a personal loan at a given interest rate. Also consider the length of the loan term; this can typically range from one to seven years.

Recommended: Guide to Personal Loans

Pros of Taking Out a Personal Loan for Closing Costs

Here are some of the key benefits of taking out a personal loan for closing costs.

•   Collateral not required: Personal loans are often unsecured loans, meaning that you don’t have to put an asset up in order to receive the loan. Therefore, if you fail to repay the loan, your lender will not claim the asset to repay your debts.

•   Quick approval: It usually doesn’t take long to get a personal loan once you’ve been approved. After you submit your application and materials, it might take just a day to get the personal loan, though it could take longer.

•   Flexible repayment options: You can tap into flexible repayment plans, including no prepayment penalty, meaning that the lender won’t penalize you for paying off the loan early.

Cons of Taking Out a Personal Loan for Closing Costs

Next, consider the downsides of using a personal loan to cover closing costs.

•   DTI increase: Lenders will look at your overall debt under a microscope, so taking on a personal loan may factor into your overall debt. It may signal to the lender that you aren’t in a good financial position since an additional loan could raise your DTI ratio. It might keep you from being approved for a mortgage or could result in a higher mortgage interest rate.

•   Additional loan payment: You might find it tricky to repay a personal loan in addition to a mortgage payment. Consider whether you can comfortably make both payments every month.

•   High interest rates: There is the potential for high interest rates if you have poor credit. This can make it more challenging to afford a personal loan.

Recommended: Personal Loan Requirements

Alternatives to a Personal Loan for Closing Costs

You may have options vs. getting a personal loan for closing costs. Consider how else you might handle those fees.

•   Roll them into your mortgage: You may be able to add your closing costs to your mortgage, but this means you’ll increase the principal balance of your loan. This will increase both the principal and the interest you’ll pay over your loan term and also translates to higher monthly payments.

•   Ask for a waiver: Your lender may be willing to waive certain fees. For example, they may reduce certain processing fees. There’s no guarantee, but it can be worth asking. That might help you out with your final closing cost amount.

•   Ask the seller to pay: As mentioned previously, sellers may pay for some of the closing costs if they’re eager to ensure that the property sale doesn’t fall through.

•   Tap into assistance programs: Many state and local governments offer down payment and closing cost assistance programs for moderate- to low-income home buyers. Look into your state’s housing finance agency, your city or county website, the U.S. Department of Housing and Urban Development (HUD), or check with your lender to learn more about your options.

•   Use gift money: Do you have a generous grandparent or parent who wants to help you cover your closing costs? Your state may have rules and regulations attached with gift money (especially ensuring that it’s an actual gift). Check with your lender to learn more.

The Takeaway

You can typically use a personal loan to pay for closing costs, the fees that can cost 3% to 6% of your home loan amount when you purchase a property. While this can be a convenient source of funding that is typically unsecured (meaning no collateral is required), it can raise your DTI and add to your monthly financial burden. It’s wise to carefully consider all the pros and cons, as well as alternative funding sources, when deciding whether to use a personal loan for closing costs.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Is it smart to finance closing costs?

Whether it’s smart to finance closing costs depends on your personal situation. For example, for some people who can handle the additional monthly payment, it may be a convenient move. On the other hand, getting a personal loan may increase your DTI, so your mortgage lender might charge you a higher interest rate or deny you the loan altogether.

Can I put closing costs on a credit card?

While you’ll usually use a cashier’s check, certified check, or wire transfer to pay for closing costs, you can put some closing costs on a credit card, such as attorney, appraisal, and survey fees. Check with your lender to learn more about which fees you can put on a credit card. (Also note that using your credit card in this way can raise your credit utilization rate and potentially lower your credit score.)

What is not an acceptable source of funds for closing?

Closing costs are typically paid by a cashier’s or certified check or by wire transfer. Funds for these could be acquired by such sources as a government program or a personal loan. Less frequently, credit cards, debit cards, and personal checks may be accepted for some closing costs.

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Photo credit: iStock/jacoblund

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPL-Q324-010

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Not counting the reams of time you probably will spend looking for a house, both virtually and IRL, it takes and average of 30 to 60 days to get from an accepted offer on a house to the closing if you’re financing the purchase.

Here’s the scoop on how long it takes to buy a house and get the keys in your hand.

How Long Does It Take to Buy a House In 2024?

Once you’ve homed in on a home you love, the mortgage process — from application to closing — takes an average of 30 to 60 days.

So yes, a life-changing event can happen within a month or two.

But closing times vary. A cash buyer might be able to close on a house within days. An applicant with an iffy credit history and unpredictable income may need 90 days or longer.

Before You Start Looking for Your Next Home

It’s a good idea to get your head in the game before the hunt begins.

Organize Your Finances

If you’re asking yourself “How much of a mortgage can I afford?” you can get an estimate easily.

A home affordability calculator will give you a feel for a home price limit and monthly payments. Getting prequalified will also give you a quick ballpark estimate.

Pulling a down payment together to buy a house in many parts of the country isn’t as hard as many people think. The average down payment on a house is less than 20% (though putting less than 20% down on a conventional loan usually triggers mortgage insurance).

Conventional loans may call for just 3% down for first-time homebuyers; FHA loans, as little as 3.5% down; and VA and USDA loans, nothing down. (With government loans, mortgage insurance or fees come along for the ride.)

Low- and moderate-income borrowers can sometimes get down payment assistance through a state or local agency.

Figure Out Where You Want to Live

You might know exactly what neighborhood, school zone, and vibe you want. Then your search can zero in on that area.

But looking at the cost of living by state can be eye-opening.

And narrowing things down, you might want to check out market trends by city and neighborhood.

Determine Your Must-Haves

Do you want to buy a house that has been completely updated, or will a dowdy abode or fixer-upper do? The cost of any renovations or repairs must be factored in, of course, and may be funded with a home improvement loan.

If only new construction will do, that can mean a tract home, spec home, or custom home.

What size range can you live with? Maybe you need more space, or maybe you’re financially downsizing.

Is a low-maintenance condo or townhouse more your style, or do you need a single-family home with room for a swimming pool or garden?

Five Steps to Buy a House

Ready? This timeline assumes you’re about to start seriously shopping for a house.

Step 1: Get Mortgage Preapproval (Minutes to Days)

Unlike prequalification, mortgage preapproval means one or more lenders have vetted your finances, usually with a hard credit inquiry. Once your offer on a home is accepted, if your chosen lender is one of these, it has a big head start on your final approval.

An online application might take about 20 minutes to complete if you have all of the documentation in hand, including two years of W-2s and/or 1099s, two years of tax returns, recent pay stubs, a list of fixed debts, and two months’ worth of account statements.

Lenders will look at your credit scores and credit history.

They will look at income, debts (including student loans), assets, proof of employment, rental history, divorce, bankruptcy, and gift funds for a down payment.

Depending on the lender, preapproval could be nearly instantaneous or it could take days.

If you’re shopping for a mortgage, know that multiple credit inquiries by lenders are counted as a single inquiry for 14 days and sometimes more, so try to put in your preapproval requests with various lenders within the same week.

What Is a Pre-approval Letter?

A preapproval letter from a lender states that you’ve been tentatively approved to borrow up to a specific amount. It lets sellers know that you are likely to be able to get financing. The letter will have an expiration date of 30 to 90 days.

What Is a Verified Approval Letter?

This is the term used by some lenders for a preapproval letter, to make clear the difference between prequalification and preapproval. A hard credit inquiry will have been performed, and an underwriter will have examined your preapproval application and additional documents.

Step 2: Make an Offer on a House (a Day to a Few Days)

Once you find a house you want to call your own, it might take up to five days to make an offer and come to an agreement with the seller on price and contingencies in the purchase contract. A closing date will be in the purchase agreement.

Usually when you make an offer, you will provide an earnest money deposit to the escrow company, ​​typically 1% to 2% of the purchase price.

Step 3: Secure the Mortgage (30 to 60 Days on Average)

Now you can make a full mortgage application with as many lenders as you wish, and not just lenders that preapproved you.

It’s smart to look at more than rates — one of the different types of mortgage loans might be a better fit than the others.

You’ll need to choose a mortgage term as well. Thirty years is the most common.

Once you apply, you will receive official loan estimates, allowing you to compare mortgage APRs (annual percentage rates) and more. Choose a lender. Check at the top of Page 1 of the loan estimate to see whether your rate is locked, and until when.

Step 4: Prepare for Closing

Appraisal and Title Search

Your lender will order an appraisal of the home. A property valuation that comes back lower than the purchase price could hinder loan approval.

The appraisal may be performed from 14 to 45 days before closing.

A title search of the property also will be ordered, resulting in a preliminary title report.

Underwriting

This is mostly a waiting period for the buyer. Credit reports are ordered, and the application information is verified.

Mortgage underwriting focuses on the three C’s:

•   Capacity (will your income and debt load allow you to make the mortgage payments each month?)

•   Credit

•   Collateral (did the appraisal show that the home price and value are aligned?)

Your mortgage loan officer may come back to you with questions. Once you receive final loan approval, a mortgage contingency can be lifted.

Home Inspection

A home inspection is optional but widely recommended.

Closing Disclosure and Cash to Close

Your lender is required to send you a closing disclosure at least three business days before the closing. It should match your loan estimate or come close.

You’ll need to send a wire transfer for cash to close one to two business days before closing. The closing disclosure will tell you how much money you need to wire. If you don’t wire the money, you’ll need to prepare to take a certified check or cashier’s check to the closing table.

Cash to close is closing costs (unless you chose a no-closing-cost mortgage) plus your down payment minus your earnest money deposit and any seller credits.

An option: Prepare to take a certified check or cashier’s check to the closing table.

Final Walk-Through

Your real estate agent will schedule a final walk-through within 24 hours of closing. This is a chance to be sure the home is in the condition you agreed to under the purchase terms.

Step 5: Close on Your Loan (an Hour or Two)

The lender will send your closing documents to the closing attorney or title company.

You’ll sign a river of documents in person or remotely.

The deed will be recorded with the appropriate county to transfer title to the new owner, you. Then you’ll receive the house keys.

The Takeaway

How long does it take to buy a house? An uncomplicated mortgage and closing process could take about 30 to 60 days from the time your offer is accepted. That’s a quick close on a new beginning.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

How many months does it take to buy a house?

If you are financing your purchase with a home loan, and you have a steady income and good credit, you could get from an accepted offer to the closing table in one to two months. If you have a complex financial profile, or if negotiations with the seller become complicated, expect to add time to the process.

How long does it take to get preapproved for a mortgage?

The evaluation process for a mortgage preapproval can take around 10 days. If your financial picture is clearly documented and in good shape, it could take less time. You’ll need to fill out an application with your chosen lender and agree to a credit check, plus provide information about your income and assets.

How fast can you buy a house?

A cash buyer could purchase a home in a matter of days. If you require a home loan, expect the homebuying process to take one to two months from the point that you have an accepted offer.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
This article is not intended to be legal advice. Please consult an attorney for advice.

SOHL-Q324-033

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If you just closed on a home and have yet to see paperwork from your lender about your first mortgage payment, you might be wondering when is the first payment on a mortgage due?

Most mortgage payments are set up from the beginning to be due on the first of the month. For new mortgages, you make the first month’s payment at closing, and you won’t make your first “real” mortgage payment until the end of the next month.

So that you’re prepared, let’s walk through when your first mortgage payment is due, how to make it, and what happens if you miss a mortgage payment. By the end, you’ll know how to make your first mortgage payment and have a solid plan for keeping your mortgage in good standing.

Determining Your First Mortgage Payment Due Date

After you close on your loan, the next part of the mortgage process is receiving a “welcome package” from your new mortgage servicer. It will include instructions from your servicer on paying your first mortgage payment. It will have your loan number, how to contact the servicer, the servicer’s website information, your payment amount, due date, list of fees, payment methods accepted, information on paying off your mortgage, and some other legal disclosures they’re required to send.

As far as the exact due date, when is the first payment on a mortgage due after closing? Lenders require your first mortgage payment within 60 days of closing your loan. Since they’ve already collected prorated interest for the first month at closing, you’ll be making your first payment at the end of the first full month you’re in the home.

For example, if you close on a home April 15, you’ll have paid prorated interest for the month of April at closing. Your first payment will likely be due June 1 so you will make your payment at the end of May. This payment will include the interest you’re being charged for the month of May.

Recommended: How to Get a Home Loan

Preparing for Your First Mortgage Payment

Now that you know when you’ll likely make your first mortgage payment, you have a few things to do to get everything in order. Sometimes, preparing for your first mortgage payment means waiting for the letter from your new mortgage servicer — so keep an eye on your mail. When you do have the information about where your payments need to go, you’ll want to set up automatic payments as soon as you can.

Setting Up Automatic Payments

Most borrowers can set up automatic payments in one of two ways:

•   With your mortgage servicer

•   With your bank

Setting up an automatic payment from your bank can help you centralize your finances and make things easier for you to see and control. An automatic withdrawal pulled from your bank account by the mortgage servicer will do the same thing, but you’ll need to set it up with the mortgage servicer.

Budgeting for Additional Costs

Your home loan payment usually includes an amount for mortgage insurance, property taxes, and homeowners insurance, but you’ll want to make sure you are saving money for other costs that come your way, such as:

•   Homeowners association (HOA) fees

•   Home maintenance and upkeep

•   Utilities

•   Security system

•   Emergency repairs

Recommended: Mortgage Calculator

Consequences of Missing Mortgage Payments

Missing a mortgage payment can have some serious consequences, but before you get to that point, you’ll have a chance to rectify it. If you miss a mortgage payment, you’ll want to call your lender to work out a repayment plan and try to avoid some of the consequences, such as late fees and penalties, a lower credit score, and foreclosure.

Late Fees and Penalties

Mortgages generally have a grace period, usually around 15 days. After 15 days, you’ll be assessed a late fee. How much the late fee is will vary by lender and mortgage amount. You can find the late fee for your mortgage in your loan documents.

In general, you may see a late fee up to 5% of the principal and interest portion of your mortgage payment. For a $2,000 mortgage payment, that could be up to a $100 late fee.

Impact on Credit Score

Missing a mortgage payment will have a negative impact on your credit score when it is reported. Mortgage companies typically wait until the mortgage is 30 days past due to report it to the credit bureaus. The late payment could stay on your credit report for up to seven years.

Payment history accounts for 35% of your credit score. A missed mortgage payment can drop your credit score approximately 50 points, according to analysis of more than one million mortgage loans by Milliman, an actuarial and consulting firm. Four missed payments lowers a score around 100 points.

If you do miss a mortgage payment by accident, most credit scores are able to recover within two years.

Risk of Foreclosure

In 2023, there were 357,062 foreclosure filings made in the United States, which represents a quarter of a percent of all housing units in the U.S. If you know you’re going to have trouble making a payment, contact your lender as soon as possible to see if there are any relief programs available.

If a borrower misses payments, in most cases a lender may start foreclosure proceedings when they haven’t received a payment for 120 days. From there, the amount of time before the lender forecloses on your home depends on state law. States like Hawaii, Louisiana, and New York average more than 2,000 days (more than 5 years!) to complete the foreclosure process. States like Montana, Virginia, and Texas average 123, 152, and 163 days, respectively.

Tips for Staying on Track

If you’re worried about staying on track with your mortgage payment you can try these ideas:

•   Use a budgeting app. There are a whole host of budgeting tools that can help you keep track of your mortgage payment due date (as well as other important financial information).

•   Set automatic payments. As noted above, you can set up your mortgage payment to be paid automatically, from either your bank or the mortgage servicer. You’ll link account information and set a date for payment to be delivered.

•   Utilize calendar reminders. A calendar reminder, either in the analog or digital world, could help you remember to make your mortgage payment if you don’t have automatic payments set up.

•   Put emergency funds on autopilot. Some mortgage servicers may allow you to link more than one payment method. If there’s not enough money for the mortgage payment in one fund, you may be able to pay your mortgage from savings.

•   Be aware of market changes. If you’re struggling to make payments, you may be able to save money by pursuing a refinance with either a different type of mortgage, a lower interest rate, or a different mortgage term.

If you have the urge to pay off your mortgage early or make extra payments to reduce the principal owed (a process called mortgage curtailment), study your mortgage agreement carefully to understand if there are prepayment penalties.

The Takeaway

Your first mortgage payment is typically due at the end of the first full month after you close on your loan. There’s some leg work involved with setting up and making the first mortgage payment, but if you’re able to create a system, you’ll have a good chance of successfully paying your mortgage on time each month.

If you get into trouble or need help with your mortgage payment, contact your mortgage servicer as soon as possible. They may have a plan to help get you back on track with your mortgage payment and keep you in your house.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Can I make my first mortgage payment before the due date?

Yes, lenders accept mortgage payments (including your first mortgage payment) before the due date. It might be helpful to wait until the mortgage servicer’s instructions come in the mail to know exactly where you need to send your mortgage payment.

What happens if I miss my first mortgage payment?

Mortgage payments have built-in grace periods, so if you miss your first mortgage payment by a few days, you’ll likely be fine, but you should make your payment promptly to keep your mortgage current and your credit in good shape. If you can’t find a letter from your mortgage servicer, give the servicer a call and ask if they’ll take payment over the phone.

How long is the grace period for mortgage payments?

The grace period for mortgage payments is typically 15 days.

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Photo credit: iStock/PIKSEL

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOHL-Q324-019

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Investing in real estate can be a lucrative endeavor. But if you don’t have hundreds of thousands of dollars saved in cash to put toward a property, using a credit card to secure a real estate investment might be an option.

There are ways to execute this investment approach. However, there are also serious caveats to consider before moving forward with using a credit card to invest in real estate.

Can You Buy Real Estate With a Credit Card?

You can’t purchase a physical real estate property outright with a credit card the way you would when using a credit card to buy lunch or a new television. One reason for this is because a typical consumer credit card likely doesn’t offer a credit line large enough to cover the entire home price.

Even if you do qualify for a credit line to cover all or a significant portion of the home price, you’ll face another challenge. The title company or real estate agency that’s facilitating the deal requires that payment is provided using bank-certified funds — such as a cashier’s check, certified bank check, or wire transfer — to finalize your investment transaction. Given what a credit card is, it won’t meet those standards.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

How to Finance Real Estate Investments With a Credit Card

While you can’t swipe your credit card to purchase real estate, there are ways that you can leverage your credit card to help fund your real estate investments.

Through a Cash Advance

If you have a high enough credit limit, a viable way to buy real estate with a credit card is by getting a cash advance against your card. By doing this, the funds you borrow from your credit card will become quickly available for use on a real estate investment, which might be helpful if you’re buying real estate in a hot market.

Keep in mind that fees typically apply for cash advances. Typically, you’ll pay a fee in the range 3% to 5% of the transaction amount, depending on your particular card.

Also know that cash advances typically come with interest rates that are higher than the card’s standard annual percentage rate (APR). Plus, interest begins to accrue immediately rather than at the end of the grace period like it does on regular credit card purchases.

Recommended: What Is the Average Credit Card Limit?

For Related Real Estate Costs

Some investors also use credit cards to invest in real estate by using their card for renovation project expenses. If you purchased a low-cost investment property and want to update it for passive rental income, for example, you might be able to invest in your property by putting charges for contractors and materials on your credit card.

By Using Credit Card Rewards

Another unconventional approach to buying real estate with credit cards is directly redeeming earned rewards as cash. Cash redemption values are typically lower compared to redeeming rewards toward travel, for example, but this approach can still unearth the capital you need to invest in your next property.

This strategy is particularly effective if you’ve already amassed years of rewards through a business credit card, and are willing to pool earned rewards from your personal credit card rewards programs, too.

Recommended: Can You Buy Crypto With a Credit Card?

Advantages of Using a Credit Card to Invest in Real Estate

Although buying real estate with a credit card is an unconventional approach, there are some benefits in doing so. In particular, the advantages include that:

•   You can invest faster: If you don’t have a lump sum of cash savings ready, it might take years to save up enough capital to get your foot into real estate investing. Using a credit card to invest in real estate can help you realize your investment goals faster.

•   You’ll have fewer costs at closing: Since you’re not financing through a mortgage lender, there are fewer fees to worry about. Unlike when buying a home as your primary residence through a mortgage loan, costs like origination fees, appraisals, and escrow fees aren’t a required part of a real estate investment transaction done in cash.

•   You might earn rewards in the process: Most card issuers don’t let you earn credit card rewards from cash advances. However, you can accelerate your rewards earnings by using your card for spending associated with your property investment. For example, materials and contractor costs for renovation projects, like a kitchen update or a room addition, can help you rack up rewards faster.

Downsides of Using a Credit Card to Buy Real Estate

There are major disadvantages to using a credit card to invest in real estate. If you’re considering how to buy rental property with credit cards, keep in mind the following drawbacks:

•   You’ll have a hard time using credit cards directly to invest in real estate: A notable downside to buying real estate with credit cards is that you’ll likely be unable to throw a credit card onto the table to close a real estate transaction. You’ll have to undergo the extra step of getting a credit card cash advance. But be aware that card issuers might set a lower available limit for cash advances and will impose a higher APR. Plus, you’ll pay cash advance fees.

•   You’ll face high interest rates: If you have to draw a cash advance against your credit card to buy real estate, you’ll face expensive APRs, compared to other financing sources, like a personal loan. According to the latest Federal Reserve data, the average credit card rate across all accounts with balances is currently 22.76%. By comparison, the average personal loan rate is 12.36%.

•   You’re taking on a lot of risk: How credit cards work is that they let you purchase goods and services, even if you don’t have the cash to cover the full amount, immediately. The caveat, however, is that you’ll need to repay the amount either in a lump sum when your statement is due or over time.

   If you successfully buy real estate with a credit card, you’re legally liable for that debt and must repay it based on the rate and terms of your credit card agreement. This holds true regardless of whether your investment turns a profit. Plus, if you choose to pay back the funds you borrowed over many months, you’ll incur exorbitant interest charges in addition to the principal balance.

Recommended: How to Avoid Interest On a Credit Card

Factors to Consider Before Using Your Credit Card to Invest in Real Estate

After assessing the pros and cons of investing in real estate using a credit card, also consider the following factors that might impact your investment:

•   Whether you’ll need additional funding sources: If your credit card doesn’t provide a sufficient amount for your real estate investment, you’ll need to seek funds elsewhere.

•   What the local real estate market is like: Whether your goal is buying a property to flip and sell or buying rental real estate, do your homework. This includes finding a desirable neighborhood and a suitable property, as well as assessing renovation projects and other repairs necessary to set your investment up for profitability.

•   If you can repay your credit card bill: At best, consider your credit card as a short-term loan tool. Plan to put profits you’ve earned toward paying down your debt ASAP.

Alternatives to Buying Real Estate With Credit Cards

If you don’t have hard cash stowed away for your next real estate investment, but aren’t ready to leverage your credit cards for the investment, you have a couple of other options:

•   Personal loans: A personal loan is another financing option, particularly if you have strong credit. It offers a higher borrowing limit and longer repayment timeline compared to a credit card. Also, as mentioned earlier, personal loan interest rates are generally lower than credit card APRs.

•   Personal savings: Another option is using cash and avoiding credit cards and other methods of borrowing altogether. If you have personal savings that you can tap into or are willing to hold off on investing in real estate until you’ve built up enough savings, you can potentially avoid costly finance charges.

The Takeaway

Tread carefully when using a credit card (i.e. borrowed money) to fund any investment, including real estate. Adhering to important credit card rules — like staying on top of your credit utilization and paying your credit card statements in full — can help you avoid going into debt for your investment.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

How can I buy rental property with a credit card?

If done strategically, you can use a credit card to finance a rental property either through a credit card cash advance or by using the credit card to pay for renovations on an investment property flip.

Can I use a business credit card to buy real estate?

Yes, you may be able to use a business credit card to invest in real estate. Doing so separates the debt from your personal credit profile, so the high credit utilization on the business credit card doesn’t affect your personal credit score.

Is it a good idea to buy real estate with a credit card?

Whether buying real estate with credit cards is a good idea depends on your investment risk tolerance. A credit card might work as a short-term funding option, but plan on repaying the debt with your profits quickly to avoid an underwater investment.

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Photo credit: iStock/SDI Productions

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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The FHA Streamline Refinance program is a simplified version of a mortgage refinance for borrowers who already have a loan backed by the Federal Housing Administration (FHA). It’s possible for borrowers to refinance without a new property appraisal, credit check, or income verification — but owners do have to be current on their existing FHA mortgage.

The FHA Streamline Refinance does have its limitations. For example, if you need cash out or want to eliminate the mortgage insurance premium, you can’t do it with the FHA Streamline Refinance and you’ll need to find another mortgage type.

We’ll explore exactly what is an FHA Streamline Refinance, how it works, what the requirements are, the process of getting one, and what the benefits are to help you determine if this program is right for you.

Note: SoFi does not offer FHA streamline refinance at this time. However, SoFi does offer FHA loan options.

What Is an FHA Streamline Refinance?

An FHA Streamline Refinance refinances an existing FHA loan into a new FHA loan with limited credit and underwriting requirements for the borrower. It’s faster and sometimes cheaper to obtain than a full refinance, especially since it doesn’t require a new appraisal.

Typically, the main goal is to lower monthly payments by refinancing to a lower interest rate, but if the mortgage term is reduced or the loan type is changed to a fixed-term loan, that could also be considered a “net tangible benefit” of the refinance by the FHA.

There are two types of FHA Streamline Refinance: credit qualifying and non-credit qualifying.

Credit Qualifying

As the name implies, your credit and income are used to qualify for an FHA Streamline Refinance and for the lowest interest rates. An appraisal isn’t needed for this type of refinance.

Non–Credit Qualifying

A non-credit qualifying mortgage doesn’t require the lender to assess your credit or ability to repay the loan, but all borrowers on the original loan must remain on the new loan. Like the credit-qualifying refinance, a non-credit qualifying one doesn’t require an appraisal, but there are other eligibility requirements.

Recommended: FHA Loan Buyer’s Guide

Eligibility Requirements for FHA Streamline Refinance

To qualify for an FHA Streamline Refinance, the borrower must derive a “net tangible benefit” from the refinance, such as a lower interest rate, a shorter loan term, or a switch from an adjustable-rate mortgage to a fixed-rate mortgage. If you’re considering a refinance, you might want to run your numbers through an FHA loan calculator to see if a refinance will save you money.

Other requirements relate to the loan type, occupancy, credit score, and payment history.

Loan Type

The loan being refinanced must be an existing FHA loan. The refinanced loan will remain an FHA loan, which means you’ll still need to pay mortgage insurance. If you’re current on your payments, it could make sense to take a look at other types of mortgage loans beyond FHA.

Occupancy Status

An FHA Streamline Refinance can be used in the following occupancy scenarios:

•   Owner-occupied one- to four-unit properties

•   HUD-approved second homes

•   Investment properties with existing FHA-insured mortgages

Credit Score and Payment History

There is no credit score requirement for the FHA Streamline Refinance under the non-credit qualifying option. However, FHA Streamline Refinance rates can be better for those who use the credit-qualifying option and supply credit qualifications to the lender.

Borrowers do need to have made at least six payments and wait 210 days before applying for a refinance on their FHA loan. Borrowers must also be current on their mortgage payments with no delinquencies.

Recommended: Minimum Down Payment for an FHA Loan

Benefits of an FHA Streamline Refinance

Here are a few of the ways in which a homeowner may benefit from the FHA Streamline Refinance program:

A Lower Interest Rate

For borrowers who bought a home when their credit was bent out of shape or interest rates were high, FHA Streamline Refinance rates could be lower than the rate they currently have.

A Different Loan Type

If you have an adjustable-rate mortgage, the FHA Streamline program can change it to a fixed-rate mortgage and help stabilize your payments.

Remove or Add a Borrower

If you need to remove a borrower from the loan, such as the case with death, divorce, or separation, you may be able to do it with a streamline refinance. This may be done if the borrower can supply supporting documentation, such as a divorce decree.

Pay Off a Loan Faster

By refinancing to a shorter loan term, you’ll likely pay off the loan faster and save yourself a good amount of money.

Avoid an Appraisal

The FHA Streamline Refinance uses the value of the home from the original FHA mortgage, with a maximum loan amount of the existing loan balance. Because these numbers don’t need to be adjusted upwards, no new appraisal is needed.

Reduce Closing Costs

There are costs involved with an FHA Streamline Refinance, but they may be less due to the reduced requirements. For example, you do not need to pay for an appraisal with an FHA Streamline Refinance.

Close Quickly

With reduced documentation and underwriting requirements, and no appraisal required, it’s possible to close on the loan relatively quickly.

FHA Streamline Refinance Process

The FHA Streamline program reduces the documentation and underwriting requirements for the lender, which usually translates into a quicker refinancing process. Here’s what you’re looking at when it comes to documentation, timeline, and costs.

Documentation Needed

Your lender will be able to see your payment history with a credit check, but there are a few more documentation requirements. If you’re applying as a non-credit qualifying borrower, these include:

•   Residency verification, such as a utility bill in the occupant’s name

•   Evidence of payment history for the past 12 months

•   If a secondary residence, approval from jurisdictional FHA Homeownership Center

If you’re applying with a credit-qualifying mortgage for the lower rate, you’ll likely need to provide the typical documentation required by the lender, such as:

•   Credit score and history

•   Proof of income and employment history

•   Bank statements

•   Debt obligations

•   Assets

Lenders use this information to determine if you have enough income to qualify for the loan, what rate you qualify for, and to verify funds to close the loan.

Refinancing Timeline

An FHA Streamline Refinance takes less time because there’s no appraisal required. In a general sense, the process looks something like this:

•   Find FHA-approved lenders. For an FHA Streamline Refinance, lenders must be approved by the FHA as a direct endorsement lender to qualify.

•   Apply. Talk with lenders to see if your situation fits with this type of mortgage. Apply with your top choices, noting the closing costs and interest rates offered by lenders.

•   Submit documentation. Since there are fewer forms to find and submit, you may be able to complete your part of the application faster.

•   Wait for underwriting. Since the loan isn’t contingent upon an appraisal, income, or credit, your loan will be ready to process more quickly than other types of loans. Alas, it’s still a government-backed loan, so you could be waiting 30 days or more.

•   Close on the loan. Once underwriting has approved your loan, you can close and start making your new payment.

Upfront and Closing Costs

When you refinance with an FHA loan, you’ll need to pay an upfront mortgage insurance premium on the new FHA loan. You may be able to get a refund on a part of your mortgage insurance premium that you previously paid.

You also need to pay other closing costs, such as title insurance. Since the loan amount can’t be greater than the existing loan balance, these closing costs cannot be wrapped into the loan. However, you may see lenders offer no-closing-cost loans in exchange for a higher interest rate.

The Takeaway

An FHA Streamline Refinance makes sense in certain situations, but it’s not always the right option. Going through the FHA Streamline process makes sense if you don’t want your credit pulled or you’re looking to save time or money on a refinance. These types of refinances don’t require an appraisal and there are fewer closing costs as a result.

However, you can’t get rid of your monthly mortgage insurance payment and you won’t be able to refinance to a higher loan amount if you need more than $500 cash out. It’s common to see borrowers refinance to conventional mortgages over FHA mortgages to eliminate mortgage insurance and take cash out.

It all comes back to your goals. If you want a mortgage without the mortgage insurance premium or need cash out, you’ll want to look into other types of mortgages. But if you want to keep an FHA mortgage and go through minimal underwriting, then an FHA Streamline may be the right move for you.

FAQ

Can you remove mortgage insurance with an FHA Streamline Refinance?

No, you can’t remove mortgage insurance from an FHA Streamline Refinance. All FHA loans require mortgage insurance, even if you’re replacing one FHA loan with another.

How long does an FHA Streamline Refinance take?

Give it around 30 days. How long it takes to close on an FHA Streamline Refinance depends a lot on your lender, and it can be quicker due to the limited underwriting requirements. When there’s no appraisal, no loan-to-value ratio, and no credit requirement, the loan can be completed faster than when it was originally funded.

Can you get cash out with an FHA Streamline Refinance?

The maximum amount of cash you can take out from an FHA Streamline Refinance is $500. If you need more, you’ll want to look for another mortgage.

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Photo credit: iStock/Jacob Wackerhausen

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.

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