Credit Card Financing
When you’re applying for a home loan, there are certain fees you need to pay early on. These can include fees for securing your interest rate (lock-in fees), the initial loan processing fee (origination fee), a commitment fee showing the lender’s commitment to the loan, a fee for checking your credit report, and the cost of assessing the home’s value (appraisal fee). Fannie Mae allows these specific costs to be charged to your credit card. This is because these fees aren’t unusually high and the debt you might incur from them will be included when calculating your total monthly debt compared to your income (debt-to-income ratio). However, you won’t be forced to pay off these credit card charges before you close on your home. Importantly, you cannot use your credit card to cover your down payment at all.
Lenders are allowed to let you use your credit card for these fees, but only up to 2% of your loan amount. Before they do this, they need to make sure of one of two things. Either you have enough money in liquid assets (like in a checking or savings account) to cover these costs, in addition to what you’ll need for closing costs and your down payment, or they need to adjust your credit card payment amount in their debt-to-income calculation to reflect these new charges. This ensures that even with these charges, you can still afford your monthly payments.
For loans processed through Desktop Underwriter (DU), the lender’s digital processing system, lenders must manually apply this policy. They need to include the fees charged to your credit card as a part of your closing costs in the loan application. These fees should be subtracted from any fees you’re paying outside of closing. Alternatively, if the charges aren’t reflected in your credit report, the monthly credit card payment amount listed in the liabilities section of your loan application needs to be increased to account for these new charges.
Credit Card Reward Points
Fannie Mae also allows you to use credit card reward points towards your closing costs, down payment, and financial reserves as long as these points are turned into cash before your loan closes. Here’s how it works:
– If you convert your reward points into cash and deposit it into your bank account (like a checking or savings account), you won’t need to provide any extra documentation unless this deposit is considered large. If it’s a large deposit, your lender will have to follow specific guidelines to document it.
– If you convert your reward points into cash but don’t deposit it into your bank account, your lender needs to see proof that you had these reward points available before converting them into cash. They’ll need to see something like a credit card reward statement before conversion, and evidence that the points were turned into cash before your loan closes.
For loans processed through DU, if the reward points haven’t been turned into cash and deposited into an account, lenders must list the cash value of these points as an asset in your loan application. They should mark the account type as “Other” and describe it as a “Liquid Asset”.
References
For more details, visit Credit Card Financing and Reward Points of the Fannie Mae Selling Guide.