Earn a plethora of points when you charge home closings costs

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Buying a home is the single largest financial transaction for most people, and it's one that requires careful preparation and planning. A common mistake, especially with first-time homebuyers, is overlooking closing costs. If you're strategic, though, you can rack up a heap of rewards points or cash back by putting your closing costs on your credit card.

"I've seen far too many first-time homebuyers forget to budget for closing costs and get caught," Brenda Hiscock, certified financial planner at Objective Financial Partners, said in an emailed response to questions.

Closing costs are the so-called transactional costs of buying real estate. On a typical real estate transaction, closing costs add up to between 1.5 per cent and 4 per cent of a home's purchase price. For example, on a $500,000 home, you could spend up to $20,000 on closing costs - ouch!

By charging your closing costs, you can earn big bucks in credit card rewards and help with your cash flow. Here are four closing costs you can charge to your credit card.

1. Moving costs.
Whether you hire movers or do it yourself, you can usually charge moving expenses to your credit card. These costs might include movers' fees or renting a moving truck.

Either hiring a mover or renting a truck can be a significant cost, which can earn you a large amount in cash back or rewards points. Be sure to use the card in your wallet that would get you the most bang for your buck - if the moving costs don't fall under a specific category, use the card that earns you the most for general purchases.

Charging your moving costs can offer you some extra protection, too. For instance, some credit cards offer auto insurance at no extra cost, which can be helpful if you rent a truck for your move.

"If you're not protected, it's highly advisable that you buy auto insurance from the truck rental service," said Hiscock, "otherwise you'll have to pay out of pocket if the vehicle is damaged, or if you damage another vehicle or injure someone."

If you hire movers and get in a dispute with the company, you're better protected with a credit card than you would be if you paid in cash or by cheque.

2. Your home inspection.
When you're buying a home, it's highly advisable that you get a home inspection from a certified home inspector. There are two ways to do this. One option is to make the home inspection a condition of your offer to purchase (this makes the most sense in sellers' markets and balanced markets). Or, you can opt for a pre-inspection (this makes sense in buyers' markets) - you get a home inspection ahead of time before you make the offer.

Although the fee depends on the property type you're buying, budget about $500 for the home inspection. Since in most cases you can use credit to pay for your home inspection, this can add up to a substantial amount of cash back or points.

3. Home insurance.
Unless you can afford to pay for your home in cash, you'll need to take out a mortgage, and most lenders won't approve your mortgage unless your home is insured. You'll need to have your home insurance in place starting the day you move in, and you can choose to pay your home insurance premiums monthly or annually.

"Most home insurers let you charge your premiums to your credit card," Seun Adeyemi, senior financial planner at SA Capital, said in an emailed response to questions. "Not only is this convenient from a cash-flow standpoint, you can earn rewards from your premiums, too."

4. Real estate lawyer fees.
When buying a home, you'll need to hire a real estate lawyer to make sure all the legal T's are crossed and the I's dotted. Real estate lawyers do much of the behind-the-scenes legal work to ensure the deal goes smoothly. Budget at least $500 for real estate lawyer fees.

"Depending on the payment methods accepted, you may be able to charge this on your credit card to earn rewards," said Adeyemi.

If you use credit, do so wisely
Using credit to earn a plethora of rewards when you're closing on a home is smart, but any points or cash back will be negated if you can't pay off your credit card bill. High interest on your card could lead to a cycle of debt, or, worse, late fees would sink your credit score.

Be sure your home-buying budget includes your closing costs - and make sure you can afford to put those expenses on your credit card - before you pull out the plastic.

See related: Buying a home? How credit card debt can affect your purchasing power, Should you downsize your home if you're in debt?, Make the most out of your wedding expenses with credit
Updated May 2, 2017

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