When Credit Card Financing Is Allowed
Fannie Mae permits you to charge specific mortgage-related fees to your credit card during the early stages of your loan application. These include lock-in fees, origination fees, commitment fees, credit report fees, and appraisal fees.
Say you're applying for a $400,000 mortgage and need to pay a $500 appraisal fee and $300 credit report fee upfront. You can charge these $800 in fees to your credit card rather than paying cash immediately.
The key restriction is that credit card financing cannot exceed 2% of your loan amount. On that $400,000 loan, you could charge up to $8,000 in qualifying fees to your credit card. However, you absolutely cannot use credit card financing for your down payment under any circumstances.
How Lenders Handle Credit Card Debt
When you charge mortgage fees to your credit card, that debt becomes part of your monthly debt-to-income calculation. Your lender has two options for handling this.
First, they can confirm you have enough liquid funds to cover the credit card charges in addition to your down payment and other closing costs. This means showing cash reserves that could pay off the credit card debt if needed.
Second, they can recalculate your credit card payment to include the new charges and factor that higher payment into your qualifying ratios. If your minimum credit card payment was $200 per month and you add $1,000 in mortgage fees, your lender might calculate a new minimum payment of $230 and use that figure for qualification purposes.
Using Credit Card Reward Points
Credit card reward points present a different opportunity. You can use these points toward your closing costs, down payment, or financial reserves, but only if you convert them to cash before your loan closes.
Suppose you have 50,000 credit card points worth $500 in cash value. You can convert these points and use the $500 toward your closing costs or even your down payment. The conversion to cash must happen before closing, not after.
Required Documentation for Reward Points
The documentation requirements depend on how you handle the converted reward points. If you convert points to cash and deposit the money into your checking or savings account, no additional documentation is required unless the deposit qualifies as a large deposit under Fannie Mae's rules.
Large deposits typically require explanation and documentation per [[B3-4.2-02]]. If your converted reward points create a large deposit, you'll need to provide your credit card reward statement showing the points balance before conversion and evidence of the conversion to cash.
If you convert reward points to cash but don't deposit the money into a depository account, your lender must document two things: that the reward points were available to you before conversion (shown through your credit card statement) and that you actually converted them to cash before closing.
Desktop Underwriter Considerations
For loans processed through Desktop Underwriter (DU), lenders must handle these situations manually. Credit card fees must be entered as closing costs in the loan application, then removed from borrower-paid fees if they're being paid outside of closing.
If you're using unconverted reward points, your lender must enter the cash value as an "Other" asset type with a description of "Liquid Asset" in the DU system. This ensures the automated underwriting system properly accounts for these funds.
Why These Rules Exist
Fannie Mae allows limited credit card financing because early mortgage fees are typically small amounts that don't represent extraordinary debt. The 2% limit prevents borrowers from financing large portions of their transaction costs, which could indicate insufficient funds to close.
The prohibition on credit card financing for down payments protects against borrowers who lack the actual cash needed for homeownership. Down payment funds demonstrate your financial capacity and commitment to the purchase.
The reward points rules recognize that these represent legitimate value you've earned, but requiring cash conversion ensures the funds are actually available when needed for closing.
Common Complications
Several situations can complicate credit card financing and reward points usage. If your credit card balance increases significantly during the loan process, your debt-to-income ratio might exceed acceptable limits, potentially affecting your loan approval.
Timing issues with reward points can create problems. If you wait too long to convert points, you might not receive the cash before your closing date. Some credit card companies take several business days to process point conversions.
Be careful about charging additional items to your credit card after your lender has calculated your qualifying ratios. New charges could push your debt-to-income ratio above acceptable levels and require loan re-approval.
If you're planning to pay off credit card debt before closing, make sure your lender knows this. Debts paid off at closing can be excluded from your debt-to-income calculation per [[B3-6-07]], but this requires proper documentation and timing.
References
For the official guidelines, see B3-4.3-16: Credit Card Financing and Reward Points in the Fannie Mae Selling Guide.
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Original Fannie Mae Guideline Text
B3-4.3-16, Credit Card Financing and Reward Points (08/04/2021)
Credit Card Financing
Fannie Mae permits certain costs that must be paid early in the application process, such as lock-in fees, origination fees, commitment fees, credit report fees, and appraisal fees, to be charged to the borrower’s credit card because these fees do not represent extraordinary amounts and the credit card debt is considered in the borrower’s total monthly debt-to-income ratio. Borrowers are not required to pay off these credit card changes before closing. Under no circumstances may credit card financing be used for the down payment.
Lenders may allow credit card financing for the payment of common and customary fees paid outside of closing up to a maximum of 2% of the loan amount if the lender:
confirms that the borrower has sufficient liquid funds (financial reserves) to cover these charges (in addition to funds needed for other closing costs and the down payment that they will be paying); or
recalculates the credit card payment, per
B3-6-05, Monthly Debt Obligations, to account for the new charges and includes the updated payment in the qualifying ratio calculation.
For DU, lenders must apply this policy manually. The fees charged to the borrower’s credit card must be included as a closing cost in the loan application, and removed from any Borrower Paid Fees entered as an other credit for the fees paid outside of closing. Alternatively, the monthly credit card payment in the liabilities section of the loan application must be increased to include the charges if not reflected in the credit report.
Credit Card Reward Points
Fannie Mae permits credit card reward points as acceptable funds for use towards closing costs, down payment and financial reserves, provided the reward points are converted to cash prior to the closing of the loan. The following requirements apply:
If the credit card reward points are converted to cash and deposited into the borrower’s depository account (for example, checking or savings), no additional documentation is required unless the deposit is considered a large deposit. In this event, the lender must follow the requirements in Evaluating Large Deposits in B3-4.2-02, Depository Accounts.
If the credit card reward points are converted to cash, but not deposited into a borrower’s depository account, the lender must provide evidence the reward points were
available to the borrower prior to the conversion, including verification of the cash value (for example, credit card reward statement prior to conversion); and
converted to cash prior to the closing of the loan.
For DU loan casefiles, if the reward points are not already converted to cash and deposited into a depository account, lenders must enter the cash value of the reward points as an Asset with an Account Type of "Other" and a description of "Liquid Asset". See B3-4.4-02, Requirements for Certain Assets in DU for more information.
