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Can I use my credit card to pay for a house deposit?

Can I use my credit card to pay for a house deposit?

Buying a property is arguably one of the biggest purchases you’ll make in your lifetime, with the initial deposit costing a fair chunk of anyone’s savings. However, you may be wondering if a credit card is an accepted form of payment for a deposit?

Here is everything you need to know about using a credit card to pay for a house deposit.

Is it possible to pay for a house deposit with a credit card?

Short answer, no. Even if your credit card provider approved this purchase, your home loan lender would see this as a high-risk transaction. This would give them cause to cancel your loan approval. Further, the property sale would likely fall through as, in the settlement period, the real estate agent and seller would have cause to cancel the sale.

Considering that paying for anything with a credit card can lead to defaults on payments and high amounts of debt for the cardholder, this is in the would-be buyers’ best interest.

In fact, here are the most commonly accepted payment methods for house deposits:

  • Personal cheque – one of the modern instances of cheques still being the most favourable payment method is for a house deposit.
  • Counter cheque – If you don’t have a cheque book, you may be able to get a counter cheque from a branch prior to private sale/auction.
  • Electronic funds transfer – Paying your deposit directly to the real estate agent/seller.
  • Deposit bond – typically used when a buyer is awaiting funds from an existing sale, a deposit bond is used instead of cash until settlement - where the deposit is paid in full.

Before you attend an auction or make an offer to a real estate agent, consider asking them what the preferred payment method is.

Credit limits and house deposits

In past years, home loan lenders have been more accepting of new borrowers with smaller deposits – 5 per cent and lower in some cases. However, following the Royal Commission into the Banking Sector and Australian Prudential Regulation Authority crackdown on irresponsible lending practices, the days of tiny deposits for million-dollar mortgages are gone.

Nowadays lenders encourage borrowers to have a deposit of 20 per cent or more. Not only does this showcase a level of financial responsibility on the borrower’s behalf but helps them to avoid paying costly lenders mortgage insurance (LMI). Home loans of 10 per cent are still available, but lenders may be more likely to reward borrowers with higher deposit sizes with lower interest rates too. So, there can be financial incentives to saving a bigger deposit.

Hypothetically speaking, putting a house deposit on a credit card may mean you’re putting $110,537 on your plastic, based on national house prices from CoreLogic in August 2020. Not only would this debt be astronomical for any credit card holder, but the potential interest you might pay could balloon over $400,000, if you only made minimum repayments.

Cost of putting a house deposit on your credit card in Australia

National median house price$552,689

20% deposit amount$110,537
First monthly repayment

(16% purchase rate)

$2,244
Total paid in minimum credit card repayments$421,408
Time taken to pay off balance81 years 7 months

Source: CoreLogic Index Results, August 2020. ASIC credit card calculator.

Note: Figures based on 16 per cent interest rate and cardholder making minimum repayments.

Even if your home loan lender or the real estate agent approved this payment method, and even if you had these funds in your savings, you’d need to consider whether your credit limit would allow this purchase to be approved in the first place.

In fact, most credit cards have maximum credit limits around $100,000. If you’re the type of high-earning Australian who qualifies for a credit card like this, it begs the question: would you need to put a house deposit on a credit card in the first place?

For example, the AMEX Platinum is a charge card with no specific credit limit, but if you don’t pay the balance in full by the end of the month, you’ll be hit with a fee. It also carries an annual fee of $1,450 and requires an income of $100,000 or more.

If you can afford this kind of card, then realistically, you can afford to save for a house deposit.

How can I afford a house deposit then?

It’s no secret that property prices have grown sky-high in the last few decades, with young Aussies struggling to get a foot on the property ladder.

If you’re looking for a means to get a house deposit, you’ll unfortunately have to consider doing so the old-fashioned way. However, here are some helpful tips to boost your savings and get yourself that much closer to nabbing your first property.

RateCity tips for first home buyers:

  1. Dream smaller – you’re not going to be able to afford your dream home the first time around. It’s called a property ladder for a reason, so consider making a smaller step with a more affordable apartment in an up-and-coming suburb first.
  2. Sell your belongings - it’s never been easier to make some extra cash thanks to buy/swap/sell platforms like GumTree or Facebook Marketplace.
  3. Bridesmaid suburbs – similar to shopping smaller, consider looking for property in a bridesmaid suburb, aka a suburb near your ideal suburb that is more affordable.
  4. Choose a better savings account – if your savings account is paying you next to nothing in interest repayments, it may be time to compare your options to see what could give you a better return on your savings.

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This article was reviewed by Finance Writer Alison Cheung before it was published as part of RateCity's Fact Check process.

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