FHA House Hacking & Using a Credit Card to Save for Down Payment

[Derek Francisco]

Hi All,

This is my first post. I have set a goal to buy my first house by the end of the year, preferably by the end of the Summer. I have good credit and a credit card with a relatively high limit. I'm already pre-approved for a mortgage. I plan to buy a multi-unit and live in one.

My quandary is that I am trying to save up for a mortgage down payment while also being diligent to keep my credit card balance low. However, if I continue to keep putting my day to day expenses on my credit card while only paying the minimum payments, I'll be able to save for the down payment faster, albeit while stacking up some credit card debt in the meantime.

Is this a sound strategy? Am I risking hurting my credit score and ability to get my first mortgage even though I'm already pre-approved?

Thanks in advance!

Derek

[Linda Weygant]

Let me make sure I understand this.

You're putting your life expenses on a credit card and only making the minimum payment in order to "save" for a down payment?

It doesn't sound to me like you're saving, it sounds like you're borrowing trouble.  A lot of it.  I would stop this behavior and pay those credit cards off as quickly as possible.  

First of all, your debt to equity ratios are going to crazy high.  This will negatively impact your ability to qualify for any kind of reasonable house payment.

Secondly, if by some chance you do qualify for a mortgage, you've now got not only a mortgage payment to make and current life expenses to pay, you've also got several months (years?) of old life expenses to pay off.

The best way to save for a down payment is to lower your living expenses.  Then the simple formula of income minus expenses = amount to save.

You say you are pre-approved, but that is based on your **current** credit situation.  Once a mortgage broker goes to close your loan and sees a ton of additional debt that wasn't there when they pre-approved you, they won't be able to close if you've gone over acceptable debt to income ratios.