How to buy a house with a credit card

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Or sign-in if you have an account.If your debt ratios are reasonable and you know your income is going to jump, buying a house with a credit card may make sense. Photo by Submitted/SunMediaHomes across much of the country are on sale relative to the market’s 2022 peak, with the national MLS Home Price Index having dropped more than 20 per cent.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountIf you’re like untold thousands of Canadians, you probably want a piece of that real estate action but may be a little shy on the minimum down payment.Rules require a down payment of at least five per cent on a $500,000 purchase price, plus another 10 per cent on any amount between $500,000 and $1.5 million.For many, even the $25,000 minimum on a half-million-dollar home is tough to scrape together.SUBSCRIBER EXCLUSIVE: FP West: Energy Insider brings you behind the oilpatch’s closed doors with exclusive insights from insiders every Wednesday morning.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of FP West: Energy Insider will soon be in your inbox.We encountered an issue signing you up. Please try againThat’s especially true for those new to the workforce who haven’t had time to save and don’t have a cash-flush family to donate to their cause.When all else fails, some decide to borrow their down payment.Some even borrow it off their credit cards.Now, if you’re like most, you’re probably thinking something like, “What the… Are these people a little slow?”Who in their right mind would risk their financial security by financing their financing?With a 20-plus per cent interest credit card no less!Yet government regulators, lenders and default insurers are entirely comfortable with it, provided the borrower qualifies.“This type of borrower is somebody who really wants to buy a home at any cost,” says broker and co-founder of Mortgage Outlet Inc., Shawn Stillman.And when affordability worsens, he sees more Canadians considering it.“It’s generally a case where their down payment hasn’t caught up to the income they’re making.”The hurdle you have to jumpBeyond credit cards, non-traditional down-payment sources can include unsecured personal loans or unsecured lines of credit.To use borrowed money for your minimum down payment, you need (among other things):To buy a one- or two-unit home you’ll live inA down payment that is five to 9.99 per cent of the purchase priceStrong credit, generally with no delinquencies on your credit report (especially recent ones), and multiple credit accounts with a long history of on-time paymentsA minimum credit score of (officially) 600 — but assume you generally need to be up in the 700s for lenders to take a chance on a credit card down paymentThe money to be “arm’s length and not tied to the purchase and sale of the property, either directly or indirectly,” according to CMHCTo be a lawful (permanent) Canadian residentA gross debt service ratio (monthly housing costs divided by gross monthly income) of 39 per cent or lessA total debt service ratio (all monthly obligations divided by gross monthly income) of 44 per cent or lessThose final two are where most borrowed down payment applications fall apart.Reason being: the lender factors a credit card payment equalling three per cent of the card balance into your debt ratios.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.So, if you borrow $25,000, you need to prove you can afford a $750 monthly credit card payment.The lender then “stress tests” your mortgage payment using a rate that’s the greater of two per cent above your actual mortgage rate or 5.25 per cent.With minimal debt and a solid income (household income must generally be north of $100,000), it sometimes works.For everyone else, these debt ratio limits are a deal killer.Should you do it?If the only way into a house is by financing the entry fee, maybe the home is telling you something.Personally, I’ve never been a fan of credit card down payments, given all the things that can go sideways when you’re highly leveraged, including surprise expenses and the risk of negative equity trapping you in the home if values drop.Extreme leverage doesn’t care about your intentions. It only cares whether you have room to be wrong.That said, proponents believe that if your debt ratios are reasonable and you know your income is going to jump (think doctor, lawyer, engineer or other professional), or you’re new to Canada and just landed a good job, borrowed down payments may make sense.For a resident physician a few years from a full salary, the down payment may just be a timing problem.And some make the argument that failing to buy now could cost you far more than the credit card interest, which averages 21.21 per cent in this country.Put $25,000 on a 21.21 per cent card for a $500,000 purchase, and that’s nearly $6,000 in interest a year if you don’t pay it down.Using our example, the default insurance premium for borrowed down payments is 4.50 per cent of the $475,000 principal, or 0.50 percentage points ($2,375) more than if you didn’t borrow the five per cent down payment — plus provincial tax in some provinces.But based on Canadian Real Estate Association (CREA) benchmark home prices, the long-run compounded appreciation rate has been about 4.9 per cent annually, or $24,500 on a half-million home.Mind you, that appreciation is largely thanks to run-ups in 2006-2007, 2014-2016 and 2020-2021, and may not repeat given government housing supply initiatives, the immigration pullback and affordability challenges.Of course, mortgages entail regular interest as well — $19,500 in year one, using our example, and assuming a four per cent rate and 25-year amortization.But you have to live somewhere, and waiting has a cost. Hence, you need to also account for rent while you save up to buy (unless your parental landlords are generous).So yes, a case can be built for buying sooner on a credit card down payment, but a case is not the same as wisdom.Either way, Stillman is exactly right in advising, “If you do it, you have to pay down your card right away.”“Also be aware there are a lot of other costs of home ownership that can creep up on you,” he adds. “And it could hurt your credit score if you’re fully utilizing your card.”Not surprisingly, lenders and default insurers are picky about such highly leveraged candidates.Still, several lenders offer this program, as do all three insurers: CMHC, Sagen and Canada Guaranty. So if someone gets declined by one for a discretionary reason, they can always try the next in line.Interestingly, CMHC first introduced a credit card down payment option in 2004.They then axed the program in mid-2020 as part of policy changes it said would “protect future homebuyers,” “reduce risk” to “taxpayers,” “(curtail) excessive demand and unsustainable house price growth,” “further manage the risk to our insurance business” and “support the stability of housing markets.”In January 2025, however, CMHC brought the program back in order to “support access to homeownership” and compete with Sagen and Canada Guaranty (who never stopped offering it).That policy U-turn tells you plenty. The same program CMHC once killed to protect Canadians is now marketed as a way to help them. Both statements can’t be right, so the judgment lands where it always does — on the buyer.Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on X at @RobMcLister.For the best national insured and uninsured mortgage rates, updated daily, please visit our mortgage rate page here.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.