Cryptocurrency is essentially a form of digital money that is not regulated or reliant on any central authority such as a government or a bank to uphold or maintain it.
Surprisingly (and something I didn’t realize), more than one-third of small businesses reportedly accept crypto-payments, which leads some to speculate whether crypto mortgage payments are going to become more popular in the coming years. While it is not fully normalized, there are already ways that you can legally buy a home with bitcoin and other crypto assets – whether it is through a financial institution or simply as a private transaction between two parties.
Let’s look at the top three ways that you can use cryptocurrency to help you purchase real estate.
Cashing out your crypto
This is going to be the most straightforward option. If you need cash for financing, you can cash out all or some of your crypto holdings to put towards your initial down payment.
Use your crypto as collateral
Top crypto lenders like BlockFi or Unchained Capital do offer crypto-backed loans with annual percentage rates from 1-6% (at the time of this writing). These loans can be used for major purchases such as cars and houses.
These companies claim to help everyone from the unbanked to high-net-worth individuals expand their lending options by leveraging their crypto assets.
The whole concept of a crypto-backed loan is intriguing because borrowers don’t have to liquidate their crypto holdings in order to secure financing. This prevents the need to cash out your crypto, which then avoids creating a taxable event in order to buy a house.
The tricky things here are that: (A) these loans are not currently available in all states yet, and (B) cryptocurrencies are highly volatile, so determining the loan-to-value ratio is going to vary wildly by lender. Given the recent ups and down, lenders might temporarily “run for the hills” on these.
Direct crypto transfer from buyer to seller
If you think about it, there is nothing stopping 2 people from creating a private agreement to sell a home in exchange for crypto. Going this route might seem simple enough, but it is imperative to get your agreement in writing, and even talking to a lawyer who is experienced in both real estate and crypto law.
Also, this specific method probably isn’t going to fly if you plan to work with a real estate agent. The agent is likely not prepared to receive their commission in the form of crypto. Not to mention that the traditional escrow process will need to go through an accredited bank.