Put Your Miles to Work: How to Use Credit Card Rewards and Other Misc. Assets for Your Down Payment

Whether you pump gas at a gas station or purchase groceries at the grocery store, chances are you aren’t paying with cash. Most Americans have grown accustomed to swiping that little piece of plastic which makes shopping much more efficient and convenient.

Over 191 million Americans have a credit card, with many cards earning some form of miles, points, cash back, or other rewards1. But rather than redeeming these rewards for a statement credit, airfare, or useless consumer goods, consider putting them to better use.

Most borrowers probably don’t know that you can use credit card rewards towards the down payment of a new home. In fact, there are several unique assets that qualify to be used towards your home purchase that you might not even realize.

Let’s take a deeper dive into how you can use credit card rewards and other miscellaneous assets you might not have considered before towards the down payment of your next home purchase.

Credit Card Rewards

There are four main credit card networks through the United States, namely American Express, Discover, Mastercard, and Visa. Each network works with a variety of issuers that offer different rewards programs.

Depending on the issuer and the credit card rewards program you choose, you can use credit card rewards on everything from cash back, gift cards, merchandise, and so much more.

Now borrowers can also use credit card reward points as acceptable funds in a transaction. For both refinances and purchases, credit card rewards can count towards your closing costs, down payment, and even reserve requirements (where applicable).

There are two ways to go about using credit card rewards points. The first way is to convert the points to cash and deposit them into one of your bank accounts2.

If the amount exceeds 50% of your total qualifying income, also be prepared to provide additional documentation supporting the actual redemption and conversion of the credit card rewards points2.

The second way to utilize credit card rewards points doesn’t require you to have received the cash after their conversion2. This method is primarily used if you redeemed your points for cash, but you are still waiting on receipt of the funds from your credit card issuer.

Alternatively, you must document that the rewards points were available prior to their conversion and document their cash value2. The conversion must occur, at some point, prior to closing on your 2.

Cryptocurrency

Investors are always looking for new investment opportunities to grow their money. Cryptocurrency, such as Bitcoin, has become increasingly popular over the last few years.

While not as common as traditional stocks, bonds, or even mutual funds, digital currency exchange assets can also be considered an eligible asset for funds needed to complete a transaction3.

If you are thinking of using cryptocurrencies for your down payment or closing costs, just remember that it must first be converted into U.S. currency3. After that, it must be deposited into an eligible account such as deposit or brokerage accounts3.

Similar rules apply if the resulting deposit would be considered a large deposit, meaning it exceeds 50% of the qualifying income3. The source and ownership of the funds would need to be properly documented.

Cash Value of Life Insurance

Life insurance can be a strong financial tool, especially if it accrues cash value. Many investors will tap into this cash value periodically to lend money to themselves, which can be cheaper than obtaining a new loan with a traditional lender.

Borrowers can use the proceeds from a loan held against the cash value of life insurance or the surrender of a life insurance policy as funds for the down payment, closing costs, or reserves for a transaction4.

The tricky part is that lenders will then want to assess if using these funds will have a tangible impact on your ability to repay the new mortgage.

In short, if the penalties for failure to repay the loan are limited to the policy’s surrender value, payments on the loan do not have to be factored into your debt-to-income ratio4.

As usual, proof of receipt is required if the funds are needed to cover any cash to close4. A copy of the check or payout statement should be sufficient documentation4. The funds do not need to be liquidated or received if they are being used exclusively to meet any financial reserve requirements4.

Sources

1 Fay, B. (2021, May 13). Key Figures Behind America’s Consumer Debt. Retrieved October 7, 2021, from https://www.debt.org/faqs/americans-in-debt/

2 Fannie Mae. (2021, August 04). Selling Guide – B3-4.3-16, Credit Card Financing and Reward Points. Retrieved October 7, 2021, from https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B3-Underwriting-Borrowers/Chapter-B3-4-Asset-Assessment/Section-B3-4-3-Verification-of-Non-Depository-Assets/1032990881/B3-4-3-16-Credit-Card-Financing-and-Reward-Points-08-04-2021.htm

3 Fannie Mae. (n.d.). Can cryptocurrency such as bitcoin be used for assets? Retrieved October 7, 2021, from https://askpoliselling.fanniemae.com/1089496701

4 Fannie Mae. (2014, May 27). Selling Guide – B3-4.3-19, Cash Value of Life Insurance. Retrieved October 7, 2021, from https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B3-Underwriting-Borrowers/Chapter-B3-4-Asset-Assessment/Section-B3-4-3-Verification-of-Non-Depository-Assets/1032989691/B3-4-3-19-Cash-Value-of-Life-Insurance-05-27-2014.htm

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