Real estate investing has increased dramatically despite the increasing prices of properties. Many people wish to invest in real estate for various reasons. Some people want to buy their first home while others want to generate a passive income.
The major hindrance when considering an investment is the substantial amount of down payment you require.
Wouldn’t it be fantastic if your credit card can help you acquire real estate?
Well, guess what? You can use your credit card to buy real estate. It is possible.
Here we would like to point out four pros associated with purchasing real estate using a credit card.
Before getting started, we would like to stress the importance of a good credit score. Without a good score, you will not be able to secure the loan amount you want. If you do not know how to maintain a good credit score, various companies can help you.
They offer professional credit monitoring services and help you build a good credit score. The real credit pro companies can help you maintain or improve your scores.
- Prompt Buying Process
Getting a mortgage home approval process is a long and tiresome process.
Anyone who has bought a home would agree with us.
First, you need to get a mortgage pre-approval, then the seller and the agent have to approve it. After which, you have to submit the mortgage loan application. The bank and the underwriters take their sweet time to check whether you satisfy the various criteria. They want to make sure that you are loan-worthy and also whether the house is worth the money.
The average time taken to secure a mortgage loan will be 2 months, give or take.
However, you can avoid all this loan application process if you use credit cards. There is no mortgage and lender approval needed. Thus, you can complete the whole process quicker and have less paperwork to deal with.
You can get a cash advance against a credit card. Cash advances have two advantages:
- They have lower interest rates, and the fees for acquiring them are pretty minimal as well.
- Cash advances can be beneficial since some title companies do not accept credit cards for a down payment. You can produce certified checks in these cases.
- Lower Closing Costs
Did you know that you have to pay 2-5% of your home purchase value as of closing cost?
That is a lot of money.
You can cut down on this cost by taking a credit card loan rather than taking a mortgage loan. Some of the mortgage associated closing costs are as follows:
- Application Fee:
Remember when we mentioned that the banks check whether you are loan-worthy. How do they do that?
Obviously, they look at your credit scores and your credit history. And for your information, this does not come for free. Services such as these are usually charged under the Application fee.
- Origination Fee:
The origination fee is nothing but the administrative cost of your vendor. It is usually one percent of the total loan amount.
- Appraisal Fee:
Once you submit your loan application, the underwriters appraise the property you are going to buy. This is generally performed to ensure that the property is worth the investment. This comes under the appraisal fee.
- Escrow Fee:
Escrow fees are the fees that you pay to the escrow company or the title company. This is their fee for overseeing the entire transaction. In case that a real estate attorney is present during the transaction, then their fee is included as well.
These are some of the most common fees that are associated with a mortgage loan. You can avoid many of these fees in the event of using a credit card and not a mortgage loan. This additionally aids you in improving your bottom line. The less money you spend, the better the profits.
- Reduced Interest Rates
Credit cards have lower interest rates compared to traditional financing, provided that your card has a low-interest promotional rate.
Traditional financing methods such as mortgage loans and cash-out refinance have a higher interest than credit cards.
Cash-out refinance is nothing but trading your old mortgage for a new one. Except the new mortgage will be for a more significant amount, most of which will go towards closing your old mortgage. The rest of the money goes to your pocket.
People usually cash-out refinance when there are better mortgage loan deals in the market. In some cases, refinance happens when the borrower wants to renovate or remodel the house.
In the latter case, it would be even more ideal to borrow from a credit card. Instead of paying interest for a refinanced loan, you can finance your renovation at zero interest.
- Avoid Using Home Equity
Home equity is the personal finance investment an owner has in their home. It can also be mentioned as the accurate market value of the real estate property.
You can pledge home equity to get loans called the HELOC (Home Equity Line Of Credit). This is usually availed by owners who want to renovate their homes to boost the resale value.
In some other cases, these loans are applied to do extravagant expenditures like going on a vacation. These loans, when used for such purposes, become bad debt.
Since your expenses are tied up with your assets, there is always a higher risk associated with getting a loan based on your home equity. If you are skeptical about using your assets to avail of loans and expenses, you can always opt for other measures. Credit cards are one such method where you do not have to risk your asset.
It is entirely possible to borrow money through credit cards to finance your real estate investment. There are pros and cons – like any other loan – that need to be considered.
Make sure to weigh the pros and cons and then conclude whether you want to take a credit card loan. Compare and shop around between different mortgage loans and credit card interest rates and find the one that best suits your risk appetite.
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