Have you been investing in Bitcoin, Ethereum, and other cryptocurrencies? Then you probably wonder if you can use crypto to purchase a home or to get a crypto mortgage.
The answer is complicated, depending on what you mean by ‘using crypto’ to buy a home. Let’s take a closer look.
Traditional Mortgage Lenders And Crypto
If you buy crypto, you probably are not surprised to learn that the US government and the wider banking system isn’t a huge fan of this type of currency. In some cases, various cryptocurrencies directly compete with investment firms and banks.
Remember that mortgage lenders are a major part of the banking system as it has existed for decades. For example, conventional loan programs offered by thousands of lenders are based on regulations created by Freddie Mac and Fannie Mae.
How Things Change When Using Crypto For A Mortgage
When you buy a home with a mortgage, the lender is required to track the funds used for closing costs and the down payment. This means the lender will check your bank deposit activity for the last two or three months. They’ll check your bank accounts as well as retirement accounts.
If you apply for a traditional mortgage loan, lenders cannot use crypto for the down payment or closing costs. Mortgage lenders treat crypto just like they do cash. When you need to qualify for a home loan, cash isn’t acceptable for doing real estate transactions with traditional lenders.
If the mortgage underwriter notices a crypto deposit in your bank account and goes to the source, they’ll see it was from crypto. They may remove it from the funds that are available and that can affect the loan approval process.
Let’s say you have a down payment and closing costs of $75,000 and you have $80k in your bank, with $40k from bitcoin and XRP. The lender would only count the $40k coming from regular funds; they won’t count the money that came when you cashed in your bitcoin.
This seems odd, but you would be short of funds to close the transaction. The loan could even be denied in some cases – all while having the money sitting in your account!
How To Use Crypto To Get A Mortgage
The good news is there are ways you can use your crypto to get a home loan and buy a home. But you need to do some additional planning. It all comes down to ‘seasoning’ those funds:
- #1: If you put the crypto funds in your regular bank account, you need to put all the crypto funds in there at least 60 days from loan closing. It’s best for it to be more than 60 days; the more the money is seasoned, the better. Experts recommend making your crypto deposit several weeks before your mortgage preapproval and you start home shopping.
- #2: If you are self-employed and you want to deposit crypto funds in a business bank account, you need to put the crypto money in there no less than 90 days before the loan closing. But more time is better. The rules are different for the self-employed because of recent conventional loan changes that state the lender must review three months of business bank statements for the self-employed.
What About Crypto Funds As A Family Gift?
Whether you can use those funds to get a mortgage depends on several things. Usually, the crypto rules are the same for gift givers as homebuyers.
When gift funds are used in a mortgage transaction, there are three pieces of documentation that are usually needed:
- A gift letter must be signed by both sides of the transaction, where the donor and recipient agree that no repayment is needed.
- Proof of the deposit in your bank account. Or you can get a receipt from the title company if the donor sends the money to the title firm.
- Proof of the family member’s ability to give you the money.
If you want to use crypto as gift funds for a down payment, remember:
If you are getting a conventional loan, your family member can wire the money to the title company. Funds won’t be inspected beyond that.
If you are getting a government-backed loan from FHA, USDA, or VA, the answer is muddled. These are government-guaranteed loans, so the donor must show a bank statement that shows they can afford the donation.
Most donors think this is too prying but it’s required. If the underwriter notices a deposit from an unknown source, they may want more documentation. If the docs show it was crypto, they may disallow the donation.
If the donor had enough money already to cover paying for the gift, it will probably be ok. But if the crypto was part of the donor’s ability to give you the money, it could be a problem.
The Bottom Line
Just remember two things above all if you use cryptocurrency to get a mortgage:
- Plan at least two or three months in advance of the closing date. The crypto funds should be dropped in a bank account at least 60 to 75 days ahead of time, and more is better.
- Take out more than necessary. You can always put the money back after you buy the home. But you can’t pull out more crypto money at the last minute and use it to cover the down payment and closing costs.
The best idea is to talk well in advance with your lender and tell them you want to use crypto to fund the mortgage. That way, your mortgage provider can help you.
Also, you should ask your lender if they offer a crypto mortgage. This is a new product and most lenders don’t offer them, but more are dipping their toes in the water. It’s possible to use crypto in many cases to get a mortgage. You just need to do a bit more planning than with conventional funds.