With the popularity of crypto currency surging like the upward trend of mortgage rates, Americans want to know if they can buy a home and get qualified for a mortgage using crypto currency in today’s marketplace.
The use of cryptocurrency for buying homes in the US is an exciting and innovative concept, offering potential advantages in terms of efficiency, cost savings, and security. However, it’s essential to be aware of the challenges and risks, including legal uncertainties, price volatility, and tax implications. As cryptocurrencies continue to gain mainstream attention and acceptance, the real estate market may see an increase in cryptocurrency transactions. For those considering this option, it’s crucial to consult with legal and financial professionals to navigate the evolving landscape of cryptocurrency in real estate
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.
Can Borrowers Buy a Home in the US Using Cryptocurrency?
Cryptocurrency, particularly Bitcoin, Ethereum, and other digital assets, has garnered significant attention in recent years as an innovative and decentralized form of currency. While its primary use is as a digital investment or means of exchange, there’s a growing interest in whether cryptocurrency can be used to purchase tangible assets like real estate, especially in the United States. In this article, we explore the possibilities and challenges of buying a home in the US using cryptocurrency.
Cryptocurrency as a Medium of Exchange
The concept of using cryptocurrency for real estate transactions is not entirely new. Several property developers and homeowners in the US have already embraced the idea of accepting digital currencies as payment. The appeal of using cryptocurrency lies in its speed and reduced transaction costs, which can benefit both buyers and sellers.
Advantages of Buying a Home with Cryptocurrency
Speed and Efficiency: Traditional real estate transactions can be time-consuming due to the involvement of banks and intermediaries. Cryptocurrency transactions can potentially expedite the process and reduce delays.
Reduced Costs: Traditional real estate transactions come with various fees and charges, such as closing costs and agent commissions. By using cryptocurrency, buyers and sellers can reduce these expenses.
Borderless Transactions: Cryptocurrency is not bound by geographic borders. Buyers can potentially purchase properties in the US from anywhere in the world without the need for currency conversion.
Security and Transparency: Blockchain technology, the backbone of cryptocurrencies, offers robust security and transparency. This can help reduce fraudulent activities in real estate transactions.
Challenges and Considerations with Crypto
While the idea of buying a home with cryptocurrency is promising, there are several challenges and considerations to keep in mind:
Legal Uncertainty: The legal status of cryptocurrencies in the US is still evolving. Regulations may change over time, which could affect the use of cryptocurrency in real estate transactions.
Volatility: Cryptocurrencies like Bitcoin are highly volatile. The value of the digital assets can fluctuate significantly, which poses a risk to both buyers and sellers.
Taxation: Cryptocurrency transactions may have tax implications. Buyers and sellers should consult with tax professionals to ensure compliance with tax regulations.
Due Diligence: The absence of intermediaries means that buyers and sellers must exercise caution and perform thorough due diligence to avoid fraud or scams.
Lack of Widespread Adoption: While some sellers may be willing to accept cryptocurrency, it’s not yet a widely accepted method of payment in the real estate market. Buyers may have limited options.
Despite the challenges, there have been instances of real estate transactions involving cryptocurrency in the US. For example, in 2014, a Lake Tahoe property was sold for 2,739 Bitcoins, which was valued at approximately $1.6 million at the time. Additionally, Miami has seen a surge in cryptocurrency transactions, with some luxury condo developers accepting digital currencies.
Furthermore, several startups and platforms have emerged to facilitate cryptocurrency real estate transactions. These platforms aim to bridge the gap between buyers and sellers and provide escrow services to ensure secure transactions.
The Bottom Line with Crypto in the Mortgage World
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.