How to Buy a House with Cryptocurrency

So you made a boat load (or in this case a house load) of profit from the cryptocurrency boom. Maybe you sold your Bitcoin at its peak. Either way, you're sitting on a bunch of money and you have no idea what to do with it. One of my very first Steemit posts was a post titled 10 Reasons to Buy a House Today! which I still think has relevance today. I never would have imagined that Steem would have ever been worth enough for me to buy a house with, but as we see whales with extraordinary sums of money, it's entirely possible that purchasing a house with cryptocurrency has crossed the minds of a few folks.

Quick Disclaimer: Before we get into how purchasing a home can be done with cryptocurrency, I need to let you know that some of these methods operate in a legal gray area that doesn't have explicit regulation on it as of now. While I am a licensed mortgage loan originator, you should always consult a mortgage professional licensed in your state as well as a lawyer if you have any hesitations. Be prepared and do your own research. Also, everything is accurate as of the day of this writing and is subject to change. While there are no explicit cryptocurrency regulations for housing as it stands today, myself and many of my colleagues believe that there will be regulations written in the near future. Things are constantly evolving in the mortgage business. So again I state, do your research and consult professionals. Lastly, this advice is only useful in the United States. I do not have any knowledge of other countries.

A last piece before we jump in. As it stands right now, there are no companies that allow the direct purchase of real estate via cryptocurrency (as far as I know). Therefore, if you choose to pursue any of these options, you will have to convert your cryptocurrency into fiat. Yes, that is heresy to many of you, but if you want to purchase real estate with a mortgage, you will have to play by the government's rules. If you find a willing seller that will accept cryptocurrency as payment for their home, then by all means go for it, but if you are purchasing a home in the traditional sense, you will have to convert to fiat.

Now that we have all of that out of the way, let's take a look at your options for purchasing a home via cryptocurrency:

Method #1: Pay off your existing mortgage

Alright this is a bit of a cheat, I'll admit, but the fact remains that the easiest way to "purchase" a home is to pay off your existing mortgage. Obviously, this only applies to those of you that already have a traditional mortgage, but that is still a large number of folks so I felt the need to address it. This is also the simplest way and is completely legal as it sits right now.

Step one for this method is to determine what your payoff amount is for your mortgage. Contrary to popular belief, the principal balance that you see on your mortgage statement every month isn't the exact amount you have to pay to pay off your mortgage, so either go online or call your mortgage servicer and request a payoff statement. Once you have that number, you'll have to go over to wherever you keep your crypto and liquidate enough of it so that you have the necessary fiat to cover the payoff amount. With that, you'll officially own the home you used to have a mortgage on. Just remember to continue paying your property taxes, insurance, and any HOA dues on the property or you could have liens put on your home.

As I mentioned earlier, this is by far the easiest way to "purchase" a home. If you qualified for a traditional mortgage previously, its likely possible that you will qualify for another home with traditional financing. This can either be as an investment property, or potentially a new primary residence if you're looking to move up or around. You'll get a better interest rate and won't have to put as much down if you go the primary residence route. You can even use your previous primary residence as a "primary conversion" and can use the new rental income from that property as income to help qualify for your new home.

Method #2: Purchase with "Cash"

This method is probably the simplest of the purchase methods because it doesn't require the use of any outside financing. With this method, you would simply find a house you want to purchase, liquidate the amount of crypto equal to what the purchase price of the home is, and purchase the home. This is essentially the same process as if you were using cash or cash equivalents to purchase the home the traditional way. There are currently no regulations that require you to source or season (show a timeline) deposits into a bank account for the use of purchasing real estate.

Here's an example of how this method works in real life: I find a home I want to buy for $200,000. I liquidate $200,000 of crypto and transfer that into my bank account (yes you'll need one for this method). I sign a purchase and sale contract with the sellers of the home and after the contingency periods are up, wire my funds to the escrow company, sign the documents, and the transaction is recorded with the county. I'm now the proud owner of a $200,000 home that I just purchased with cryptocurrency.

Method #3: Purchase with Traditional Mortgage (Crypto as Down Payment)

In this method, we will use a traditional mortgage company and simply use cryptocurrency as our down payment. As you may or may not know, nearly all loan products require a down payment of upfront money to show that you are serious about purchasing the home and to mitigate risk to the lending institution. This down payment can be anywhere from 1%-20% or more, but 3%, 5%, 10%, and 20% are the most common terms. What this means is that if you are purchasing a $100,000 home, you would have to bring in a percentage of the purchase price upfront ($3000-$20,000 for example).

That down payment must be sourced and seasoned by the lending institution to avoid money laundering. To do so, the mortgage company will want to see at least two months of asset statements to show that you have the down payment available. Therefore, you need to liquidate your crypto at least two months prior to when you start shopping for mortgage companies. For example, let's say you are looking to purchase a $200,000 home in July and are going to put 20% down. You would need to liquidate the $40,000 worth of crypto in at least April in order for the two months of statements (May and June) to show that amount in your accounts.

The major caveat here is that you still need to be able to qualify debt-to-income wise. Typically, a mortgage lender cannot lend to an individual with a combined debt-to-income ratio of move than 45%. For example, if you make $2000 per month and have no other debts, the bank would only be able to lend you money to a $900 monthly payment (between principal, interest, property taxes, and homeowner's insurance). This means that you would have to also have some sort of "legitimate income" since the mortgage lender needs to be able to prove that your income will continue and that you the borrower are not at risk of foreclosure.

Obviously, this method isn't going to accommodate every situation and for many of you who have quit your W-2 or 1099 positions to go full-time into crypto, this method will not work since you do not have that debt-to-income qualification. Unfortunately, the harsh reality is that many individuals will not be able to get financing for a mortgage since the regulations are currently skewed towards those who have "stable" income in the form of being employees or independent contractors. Not everyone is lucky enough to have made enough in cryptocurrency to be able to afford a home outright and thus many will be unable to finance a home without what regulators deem a "stable" income.

Conclusion:

I had hoped to end this piece on a far more positive note, but unfortunately I cannot. There are currently virtually zero ways that someone can get financing for a mortgage via cryptocurrency without having another job. If you are one of the few that was able to make good amounts of cash from the crypto boom and sold at the right time, then you can use methods one and two to get into real estate. If you made enough to cover some of a home and have a job that can help you qualify for a loan through a mortgage company, then you're well on your way to being able to use method three to finance a home. But if you're like many in this space, you don't have a full-time job that supports a mortgage, but didn't make enough to purchase a home outright, then you're currently out of luck. Your best bet is to hold tight and make good cryptocurrency decisions that allow you to use methods one or two to invest in real estate.

I wrote this as a quick primer for those potentially interested in purchasing a house with cryptocurrency, so there are obviously nuances and each situation will be different. I would love to answer any questions that you may have in the comments below and will do my best to get back to every single response. I hope you found this guide helpful and I look forward to putting out even more material on the subject as things change. The blockchain has the power to completely disrupt the way real estate is done and I for one hope that happens sooner rather than later.

Disclaimer: @brandonp is a licensed mortgage loan originator in the states of Washington and Oregon. This guide is not meant to be investment advice nor is it a solicitation of business in any form. Always consult a professional when dealing with matters such as getting a mortgage.