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?
President Trump wants the United States to be “the crypto capital of the world.” In that spirit, in late June, Director of the Federal Housing Finance Agency (FHFA) William J. Pulte ordered Fannie Mae and Freddie Mac to “prepare their businesses to count cryptocurrency as an asset for a mortgage.”
The FHFA supervises Fannie Mae and Freddie Mac, the government-sponsored companies that fund a major portion of the mortgage industry.
Pulte said the housing system “needs a massive upgrade,” adding, “I want people who own cryptocurrency to be able to buy homes like everyone else. I believe cryptocurrency is an asset. I believe Americans should be able to use their crypto if they want to. It’s time the housing system caught up.”
This signals what could be a fundamental change to how cryptocurrency may be used to qualify for a mortgage.
Until now, crypto owners have been commonly advised to cash out digital currency holdings and convert them into dollars to use as assets that can be considered on a financial statement or as reserves for an applicant’s home loan.
Fervent crypto collectors are not likely to do that, believing there is too much future upside to sell now.
Learn more: Trump has called for a strategic bitcoin reserve. Here’s how it would work.
Most crypto assets continue to have one strength, which can also be their crucial weakness: volatility.
Investors thrive on “buying the dips” when crypto prices dive, but a similar sudden drop in value when crypto is used as part of a net worth statement could be troubling — even worse if crypto becomes a financial foundation for a mortgage.
Imagine you deposit some crypto for your down payment and sign the buy-sell agreement. Days later, the crypto value crashes. As a result, you’ll need a sizable additional deposit to keep the purchase valid.
That’s a call that’s going to be hard to answer.
Keep reading: The average down payment on a house
While the FHFA aims to introduce crypto into mortgage transactions as a legitimate asset, the reality may be something less. The point made above regarding volatility is an example.
However, the crypto solution may be stablecoins. Designed to maintain a steady value, stablecoins weren’t created to be an appreciating asset. That folds neatly into the mortgage loan process.
However, this means buying a house with crypto may still require converting a volatile cryptocurrency into stablecoins — which would not appeal to most crypto investors’ long-term hold mentality.
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There has been some movement on crypto mortgages, yet they’re still scarce. The idea is to allow a home loan to be issued using digital currencies such as bitcoin or ethereum as collateral without liquidating the position. Players in the space include lenders named Milo, Arch Lending, Figure, and Ledn, though loan availability varies by location.
Buyers would deposit an amount of crypto equal to the property’s sales price — or sometimes twice the value, or more — for an interest-only mortgage loan.
Again, crypto volatility plays an important role in the viability of such a loan.
Dig deeper: How to invest in real estate
Beyond the transfer of cryptocurrency assets, blockchain-based legal agreements called “smart contracts” might speed up the real estate purchase process.
The blockchain is a digital record of transactions accessible anywhere, so embedding such smart contracts on the “distributed ledger” can track when contingencies are completed, funds are transferred, and contracts are signed.
While that has nothing to do with buying a house with crypto, it may be the first hurdle to clear in adopting the framework of all crypto, the blockchain, into the real estate transaction space.
Capital gains taxes may be another reason “hodlers” (a colloquial term based on a typo for long-term holders of bitcoin) may not be quick to sell their crypto to buy a house.
The Internal Revenue Service will take a big chunk of the profits of any crypto sale in capital gains taxes.
We haven’t been able to confirm the published claims of any homes bought with cryptocurrencies. However, if current listings are any clue, it’s likely that they weren’t ranch-style 3/2s with a carport and a fenced backyard in modest neighborhoods. Crypto Emporium recently listed homes for bitcoin sale that included a modern estate in Mexico and an eight-bedroom manor in Norway. Both are offered for around 290 bitcoin, which is currently worth a little more than $33 million.
Oh, yes. If you sell the bitcoin to buy the house, the IRS says you’ll owe capital gains taxes. However, if you were to put bitcoin up as collateral for an interest-only crypto mortgage, you wouldn’t have to sell your holdings, so no tax would be due.
You can use bitcoin, ethereum, litecoin, dogecoin, and other cryptocurrencies to buy real estate, merchandise, gift cards, travel packages, and hundreds of other items. Third-party providers such as BitPay enable the transactions, though some companies accept crypto payments directly.
Laura Grace Tarpley edited this article.
