Rocket’s new credit card is aimed at homebuyers — but is it a good deal?

Rocket Mortgage, the nation’s largest mortgage lender, this week unveiled a new credit card that allows homebuyers to earn up to $8,000 towards closing costs and a down payment.

The Rocket Visa Signature Card offers a generous 5 percent back on all purchases, up to the limit – with the catch that the rewards are worth full value only if you ultimately get your home loan from Rocket Mortgage. That can discourage you from shopping around for a mortgage, a practice that can save you thousands of dollars over the life of your loan.

Despite this notable downside, is Rocket’s new credit card the best way to save for a home purchase? Here’s a dive into the details.

How Rocket’s card works

Consumers are accustomed to cards that encourage loyalty to airlines or hotel chains, but the Rocket-branded Visa breaks new ground.

“This is really the first card that’s designed to make the dream of homeownership available to people,” says Yahya Mokhtarzada, co-founder of Rocket Money, a personal finance app owned by the mortgage company.

The card’s main selling point is 5 percent back, up to $8,000, on all purchases. While some credit cards offer 5 percent back on certain categories of purchases, those cards typically scale back the rewards to 1 percent or 2 percent on other types of spending.

Mokhtarzada says Rocket’s higher rewards are intentional: “We think about the credit card as a way to really build and keep relationships. The priority here is helping people achieve homeownership rather than making a profit for Rocket.”

That said, you’ll have to spend a lot with the card — $160,000 — to reach the $8,000 limit.

“The Rocket Visa Signature is unique in offering 5 percent on everything until you hit that $8,000 credit toward a down payment and/or closing costs,” says Ted Rossman, senior industry analyst at Bankrate and CreditCards.com, “but it’s probably going to take a long time to maximize that credit.”

The card is available to both first-time homebuyers and repeat buyers — although first-time buyers are more likely to struggle with coming up with the cash for closing costs and a down payment.

The median price of an existing home sold in the U.S. in February was $363,000, according to the National Association of Realtors. Assuming a 3 percent down payment and closing costs that total 2 percent of the amount of the loan, a buyer at that price point would need $10,890 for the down payment, plus $7,042 for closing costs.

The Rocket Visa also requires you to pay a $95 annual fee unless you have a mortgage with the lender. The card offers a $200 statement credit if you spend $3,000 in the first 90 days, however, so that might remove some of the sting of the $95 fee.

After you buy a home and cash in your rewards, you can start amassing points toward your next home purchase, or collect rewards at a 2 percent rate that Rocket applies to your mortgage principal.

Rocket’s card comes with some other features, as well. If you’re trying to boost your credit score, you can use Smart Pay to pay down your balance every day, says Mokhtarzada. That tactic lowers your credit utilization, one of the key ingredients of your score — the most important factor in determining your mortgage rate.

What’s the catch?

Every rewards card requires a tradeoff. If you’re focused on tallying up miles on your Delta card, for example, you’re less likely to shop fares on American Airlines or Southwest. Likewise, Amazon hopes its rewards card will keep you in Whole Foods and out of Kroger and Trader Joe’s.

Rocket’s strategy is similar: If you’ve built up $8,000 in Rocket rewards, you’re less likely to shop around for another, potentially better mortgage deal.

Say you’re in the market for a mortgage, and your first offer for a $300,000, 30-year loan comes in at 6.5 percent, for a monthly payment of $1,896.

Shopping around until you find a mortgage at 6 percent would cut your monthly payment to $1,799. That’s a savings of $97 a month — nearly $1,200 a year and $6,000 over five years.

Rocket Mortgage’s advertised rates are often higher than Bankrate’s national averages, and the lender charges fees, such as origination and rate-lock fees.

“The biggest concern I have with this card is that it essentially locks you in to using Rocket Mortgage,” says Rossman. “That’s the only way to use your points toward a down payment and/or closing costs. So if Rocket Mortgage isn’t offering the best deal, or if you don’t get approved, your credit card points are going to be worth a lot less.”

In that scenario, you could redeem your rewards for a statement credit, but the value would fall to 1.25 percent, or a quarter of the value of the home purchase reward.

Rocket does have a strong stable of loan offerings, and it earned the No. 1 spot in the latest J.D. Power ranking of customer satisfaction with mortgage originators. Its new credit card makes sense if you’re willing to accept the card’s disadvantage of being locked in to a single mortgage lender.

One alternative, says Rossman, is to use a no-fee card that awards 2 percent cash back, then earmark that money for closing costs and down payment. The total amount will be less than what Rocket’s card offers, but — importantly — you’ll have the flexibility to shop lenders.

“To realize the full value, you’re banking on Rocket Mortgage offering the best loan terms,” says Rossman, “and there’s no way to know that many months or years in advance.”