Has anyone ever used a credit card to purchase a project then pay it off with a refi
and do you recommend this?
We’ve taken an advance (at a low special offer interest rate) to fund a down payment and rehab. We paid that off. A few year later we purchased a rental house and rehabbed it on the credit card again. We’re still paying it off from this last purchase. Hope to have it wiped out next year. The interest rate really wasn’t much higher than our bank loans. The only reason we did it this last time is because the bank we were working with put on the brakes and we wanted to buy another house that was just a few doors down from another rental house we own. I’d love to have that card paid off now, but that house has been really good to us for the last couple years.
I think it all depends on the kind of deal you can get on the card. I wouldn’t want to do it if the interest rate was in the teens or higher, but that’s just me.
If it (the interest rate) is in the teens, you might as well go with a HML. And you don’t say if you are going to do it (use the cc) for down payment, cash payment. Or what you are planning to do. We can assume that since you want to refi to pay off the card that you plan on holding for at least 6months. But you know what they say about assuming.
Ashon has a good point. And another thing is the more people you get involved in this part (financing) of a project the more help you get on the decision. For example if the hard money lenders won’t provide support for the project it is verification that you should not either. If you re using a credit card then there is no other decision gate to help out.
I like that phrase: “Decision Gate” I think I will add it to my Lexicon.
When I am deciding if I want to buy a house or not I go through several decisions. The decision can’t be an emotional decision it has to be financial. So if I go to someone to finance it and they say no, they don’t say no because they are crazy. Think about it they don’t make any money if they don’t loan money. They have just decided that they are not going to make the loan which means not to make money. That decision was based on their assessment of the viability of the deal. If they won’t loan money on the deal I don’t want to do the deal. I don’t buy houses because I want the property I buy it because it is going to make money. Even if I am going to use my credit cards I would apply for a loan to see if they would approve the deal before I use my credit card. If they deny the loan I would ask them why? The reason (whatever that reason is) is the problem. If I solve that problem I make the deal doable. People give thousands of dollars to consultants to do that exact same thing. For the price of an application fee you can get that from your lender.
My plans was to purchase and rehab my project with a no or low introductory rate but have the house below 80 percent of the value and then go to the bank and get refi.
What do you think ?
I have done this before. I actually purchased my current primary residence using credit cards. I used a combination of savings and a zero percent “balance transfer” promotion to fund the purchase, and I used a Lowe’s card to fund the rehab. I think it makes a lot of sense to use credit cards, provided you take advantage of either temporary or permanent low fixed rate deals. And when you use the cards, the limits are generally increased. This can become especially useful if you simply don’t have other sources of financing readily available.
Haven’t tried it yet but if you use a credit card for property purchase, you’ll have to pay other interest fees right? Like the interest of your credit card. Although it might be at a minimal rate, the fact that you’ll pay for the interest two times is not better.
Pretty sure the OP is talking about using the cc for the down payment but yes. If you are not shuffling the interest rate like Justin suggested than you are going to be paying interest on the cc and also on the mortgage. Doesn’t sound Ike a good deal to me. But you if you tale that into account in your numbers than you can be ready for that situation.
I don’t want to start a new thread, but I have some questions for those who are using lines of credit / credit cards to get properties.
I have lines of credit that I would be happy to use as down payments on properties, but I don’t know any mortgage banks that want to loan to someone who is putting down money from a credit card. Even when I refi’d my own home, the banks were crawling up my crack over every $2,000 or so that showed up as a deposit in my personal account.
“Mr. Bdub, we see a deposit of $2,000. Where’d that come from?!”
“My wife has a job. She made a deposit.”
“Mr. Bdub, we see a deposit of $5,000. Where’d that come from?”
“I have a job. I made a deposit.”
I can’t imagine, “I took money from another credit source and put it here” is going to work. (And I’ve been told such by my mortgage broker, who is somewhat investor savvy, not just a retailer.)
How are people getting this to work without the banks going nuts? I’d be happy to pull from a line to get 20% on the right deal.
The first time I did it was the down payment for the first property. The local bank I was dealing with didn’t say anything about where the money was coming from. My family had banked with them pretty much all our life and I had a good income. The second time, I bought a house outright with the money from the card. Obviously the seller didn’t care where the money came from.
Once you establish a relationship with a bank for investments, my experience has been that as long as they’re comfortable with the deal, they’re not going to run you thru a bunch of crap on every deal because they probably pulled your credit and examined all your financials for your first deal with them.
Even though we have all of our rentals, we still got hounded by underwriting last year when we tried to refi our personal house. They just couldn’t get over some of the numbers. The end result was that we couldn’t refi for 15 yrs so ended up at 30 again. Their problem was a line on my tax return said I had 320k of loans due in the next year which wasn’t really the whole story, but anyway…
Ah, therein lies the rub. I need to do some banking with a local bank, apparently. All of my stuff is in a large chain… (branch and atm locations close to my home.)
Financing with CC has risk but so does HM loans. HM has very high closing costs and CC usually have a 3% cash advance fee (make sure you take that into consideration).
If you are buying 100% of the investment with a CC, you have to know that you can pay it off by the time the introductory rate runs out. This means that you need to be able to qualify for a bank loan within 12 months. I would go into the bank and pre-qualify right now to make sure.
If you qualify, then financing 100% of the purchase with CCs may allow you to rehab the property and gain your 20% equity by the time you need to get the loan. If you are sure it will work - this would be a great move.
If on the other hand, you are using your CC to pay the down payment AND using 80% LTV financing, I bet you will run into problems. During the pre-qualification process, the bank is going to look at your financials and notice that you do not have 20% of the purchase price sitting around somewhere. They will ask you where you plan on getting the down payment. When you tell them, they are going to now factor that debt into the whole scenario which will most likely disqualify the loan.
Your best bet here it to go spill the beans in advance to your lender and see if they can work with you. It really depends on your overall financial situation.
I did my first rehab on a credit card and it got scary but we got through it. If you loose your credit rating it will hurt you for a long time in this business. Local banks in ND are only loaning between 60 and 70 % LTV on rental properties. Who knows maybe there is a Mortgage Broker out there has other sources that I am not aware of. If you finance with CC do it with caution.
I had the same problem buying my first property. I was getting money from flipping mid-end antiques and free scrap metal and was getting all cash from sales. I was told by my mortgage broker to give the money to someone that I could trust and have them write me a check and cash the check. What that did was create a history for the money. When asked where the money was from I replied, “Personal loan payback from a family member.” No questions asked after that. Got the multi-family house from flipping antiques & scrap metal for cash. Hope that helps!