Could I use a Credit Card?

[Jarret Durst]

I’m buying this house for 40k. Just about any lender I talk to says they will not do a Fannie Mae Homestyle loan (mortgage & renovation costs consolidated) unless it costs at least 100k. Would it be possible to pay for renovations with a 0% interest credit card and then do a debt consolidation loan at the end of the 12 months before it starts taking on interest.

[Ben Zimmerman]

Buying the house itself directly using credit will likely be impossible.  Nobody is going to let you swipe your card for 40k to purchase a house.  You could probably find a contractor willing to accept a credit card however for renovations.  You would likely need to use several different credit cards however due to individual spending limits per card.

However as with anything there are always workarounds and backdoors, in this case you need a cheap way to obtain cash from your credit card limit so that you can pay 40k in cash instead of it technically being a credit purchase.  You could use your credit card to purchase the $500 visa gift cards found at Walmart and grocery stores for $5.95 worth of fees.  Once you have the gift card take it to the bank and use the value of the gift card to purchase a money order naming yourself as the recipient, then deposit that money order into your bank account.  My bank a 1k money order goes for $0.99, so to buy the 40k house you would need 80 gift cards and spend a total of $515 in fees, which translates into roughly 1.29% in fees.  You will likely earn 1% cashback or something similar in credit card rewards which brings the effective fee down to 0.29%.  Not all locations allow the purchase of a money order with a debit card as a matter of store policy, so you may want to experiment with buying a single card first and ensure you can find a location that will offer these services before you go big and buy 80+ cards.

This technique of buying debit cards and money orders is the most common method used in what is referred to as "manufactured spending" in the credit card world, where you use a credit card that offers more than 1.29% in rewards in order to generate "free" money by earning more rewards than it costs in fees, typically using a card that offers 5% cashback in a category.  Just keep in mind that such activities are technically against the credit card user agreement and they will deactivate your card if they think you are scamming them.  It's somewhat hard to get flagged by the bank for doing this, but it is possible if for example you regularly spend 40k per month on a high limit card when your stated income is only 50k per year.  

Just keep in mind that anytime you try to use 0% interest credit card techniques there is always a risk that for whatever reason things go badly and you aren't able to refinance the way you thought you could and get stuck paying 20%+ interest rates when the intro term expires.