So, you put a little mad money into bitcoin a few years ago. Now, your crypto-fueled profit means you have a sweet nest egg to put toward a house.
But can you buy a house with crypto rather than using cash or a traditional mortgage loan? What are the roadblocks? And what about taxes?
Read more: What is a mortgage, and how does it work?
In June, President Trump expressed a vision for the U.S. to become “the crypto capital of the world.” This sentiment was echoed by William J. Pulte, Director of the Federal Housing Finance Agency (FHFA), who directed Fannie Mae and Freddie Mac to start considering cryptocurrency as a legitimate asset for mortgage qualifications.
The FHFA oversees Fannie Mae and Freddie Mac, which play a critical role in funding a large portion of the mortgage market. Pulte emphasized the need for the housing system to upgrade to keep pace with modern assets and make home buying equitable for cryptocurrency owners. He stated, “I want people who own cryptocurrency to be able to buy homes like everyone else.” This represents a potential shift towards recognizing crypto as a viable form of wealth in home financing.
Historically, those invested in cryptocurrencies were advised to convert their digital assets into dollars when applying for loans. Given the volatility of cryptocurrencies, relinquishing them to buy a home can be a daunting prospect for crypto enthusiasts who see greater potential in holding onto their investments.
In fact, volatility remains a double-edged sword for investors. While many embrace the fluctuations to capitalize on dips, this same volatility could spell trouble in mortgage scenarios. For example, if you decide to use crypto as part of your down payment and the value drops significantly, you might find yourself scrambling for additional funds to keep the deal afloat.
The FHFA’s efforts to integrate cryptocurrencies into mortgage transactions highlight a growing trend, but challenges remain. For those keen on obtaining a mortgage backed by crypto, stablecoins might serve as a more stable alternative. These digital currencies are designed to maintain a consistent value, potentially making them more suitable for mortgage processes. Yet, many crypto investors may hesitate to convert their volatile assets into stablecoins.
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There have been developments in the realm of crypto mortgages, albeit in limited availability. Certain lenders, like Milo and Arch Lending, allow homeowners to utilize digital currencies like bitcoin or ethereum as collateral, providing that you may not have to liquidate your holdings. This approach enables buyers to secure home loans without losing their investments, though typically, you might be required to deposit crypto worth more than the sales price of the property.
However, the volatility issue still looms. If the value of your collateralized crypto fluctuates drastically, it could impact the terms of your mortgage agreement.
Dig deeper: How to invest in real estate
Another exciting prospect is blockchain technology. Smart contracts, which can automate the stages of a real estate transaction, might streamline the buying process. These contracts could track the progress of contingencies, transfers of funds, and signings. While this isn’t directly tied to crypto mortgage applications, it hints at broader applications of blockchain in real estate that may come into play.
However, taxes present another hurdle for crypto enthusiasts. Selling cryptocurrency triggers capital gains tax obligations, an unwelcome surprise for many looking to dip into their crypto wealth to secure a home. If you choose to use crypto as collateral instead of selling, you might avoid these tax burdens entirely. This subtlety could be a game-changer for many “hodlers” reluctant to part with their assets.
Despite the discussions around the feasibility of purchasing homes with cryptocurrencies, established practices still dominate the landscape. Current listings provide scant evidence of day-to-day transactions using cryptocurrencies. A recent example is Crypto Emporium, showcasing properties like a luxurious estate in Mexico and an eight-bedroom manor in Norway, offered for sale at around 290 bitcoin, valued over $33 million.
By opting to use cryptocurrencies as collateral rather than selling, buyers can sidestep significant capital gains taxes. This maneuver creates an attractive proposition for potential homeowners steeped in crypto culture. Despite the evolving landscape, traditional financial practices remain influential in property transactions. Nevertheless, the burgeoning role of digital assets in real estate offers intriguing possibilities for the future.
You can indeed use bitcoin, ethereum, litecoin, dogecoin, and various other cryptocurrencies to purchase not just homes but an array of products from gift cards to travel packages. Facilitators like BitPay are stepping in to streamline these transactions, though the level of acceptance may differ across various sellers.
Laura Grace Tarpley edited this article.
