Explore your mortgage options
Can you buy a house with Bitcoin or another type of cryptocurrency? Maybe – if you’re buying a home without a mortgage loan. But if you want to finance the purchase of a home with a mortgage, you’ll usually need to rely on old-fashioned U.S. dollars.
However, that doesn’t mean cryptocurrency – digital money like Bitcoin, Ethereum, Tether and USD Coin that buyers and sellers use to close virtual transactions – can’t be part of the home buying process.
Lenders might accept Bitcoin and other digital currency to pay for closing costs on a mortgage. You might also be able to use cryptocurrency to cover the down payment on your new home. You might even find a seller who’s willing to accept digital currency as a substitute for traditional dollars in an all-cash purchase.
Although, it may be more acceptable to liquidate funds from your crypto wallet to make payments.
Can You Buy a House With Cryptocurrency?
You’re ready to purchase a home. But can you use all that Bitcoin or Ethereum you’ve saved to close this purchase?
The answer is complicated. Even with the rise in popularity of cryptocurrency, you’ll still struggle to find mortgage lenders who accept payment in virtual money. However, you might be able to use Bitcoin and other forms of cryptocurrency to cover some of the costs involved in buying a home.
Given cryptocurrency’s rise in popularity in recent years, it has become possible to use Bitcoin toward closing costs or reserves on certain home purchases – although, the exact requirements vary from lender to lender.
- Paying for a mortgage: Most mortgage lenders won’t allow you to make your monthly mortgage payments with cryptocurrency, unless you convert that digital currency into traditional funds.
- Buying a house outright: It’s easier to use Bitcoin and other virtual currency to purchase a home outright without a mortgage. But you’ll need to find a seller who’s willing to accept cryptocurrency instead of traditional cash. You’ll also need enough cryptocurrency saved to cover the entire cost of the home you’re buying.
- Down payment: Some lenders accept cryptocurrency for down payments. Say you want to put down $10,000 on your home purchase. Depending on your lender, you might be able to cover that cost with virtual currency.
- Closing costs: Closing costs, the fees lenders charge when originating your loan, can be expensive, running as high as 3% – 6% of the purchase price. Some lenders will accept cryptocurrency to cover these costs.
Ways To Use Bitcoin During the Home Buying Process
Have you saved a chunk of Bitcoin or other cryptocurrency and are eager to spend it while buying a home? There are several ways in which you can use digital money during the buying process.
Exchange Bitcoin with a private seller
The simplest way to use Bitcoin funds is to find a seller who will accept Bitcoin, or another form of virtual currency, as a replacement for cash. You can then buy the home outright with this digital money – although, you’ll need enough virtual currency to cover the entire purchase price of the home.
But be careful: Purchases made with digital currency don’t leave a paper trail. You might want to consider hiring a real estate attorney to help you negotiate the contract. You don’t want legal or financial issues to pop up after the sale closes.
Convert Bitcoin to cash
If you can’t find sellers willing to accept payment in cryptocurrency, you can convert your Bitcoin or other digital money into traditional cash, using the resulting dollars to buy the property.
However, there are some risks here. The biggest is you might have to pay capital gains taxes when converting virtual currency into traditional cash. Again, it’s best to discuss this move with a professional – such as a financial planner, tax expert or accountant – to learn how liquidating cryptocurrency could hurt you come tax time.
Use crypto as collateral when when applying for a mortgage
Some lenders allow you to use your cryptocurrency as collateral when applying for a mortgage. Collateral is a type of financial insurance policy for lenders. If you stop making your payments on the loan, the lender can seize your collateral.
For example, if you take out an auto loan and stop making payments, your lender can repossess your car. In most mortgages, your lender can take possession of your home through the foreclosure process if you stop making payments. If you’re using cryptocurrency as collateral, your lender can seize your virtual currency if you stop making payments.
Here’s how it works: Instead of selling your virtual currency to buy a home, you use it as collateral. You then make your monthly payments as you would with any mortgage – probably with traditional dollars. If you stop making payments, your lender takes your virtual currency. If you fully pay off your mortgage, your cryptocurrency is no longer needed for collateral.
This could be a good option for buyers who have a sizable amount of virtual currency saved but don’t have a consistent monthly stream of traditional income. Lenders may be wary of approving such buyers for a loan but might do so if they can offer enough Bitcoin or other crypto as collateral. By using their cryptocurrency as collateral, buyers won’t have to liquidate their virtual money into real dollars and suffer the possible tax hit that comes with it.
Again, caution is advised. If your cryptocurrency falls in value, you might have to add to your collateral. Also, not all states allow lenders to use cryptocurrency as collateral.
Pros and Cons of Buying a House With Bitcoin
As with any method of buying a home – such as financing a purchase with a mortgage or making an all-cash offer – buying a house with cryptocurrency does come with its own set of pros and cons.
You might find a seller who’s especially interested in acquiring a large amount of Bitcoin or other virtual currency. That seller may be willing to sell a house at a lower price if it means quickly collecting a large amount of cryptocurrency.
You could reduce the time it takes to buy a home if you purchase a property entirely with cryptocurrency. That’s because you eliminate the process of applying for a mortgage and all the paperwork and underwriting that comes with it.
Investors can use Bitcoin or other digital currencies to expand their real estate portfolio. Branching into real estate can help boost your passive income stream as you collect monthly payments from renters. You can also wait for your real estate to increase in value before selling it for a profit.
Virtual currency is notoriously volatile, with its value rising or falling daily. You might have enough Bitcoin to buy a home one day but, because its value has fallen, not enough the next.
Because cryptocurrencies are virtual, you’ll need to watch out for hackers. You don’t want cybercriminals accessing and draining your stash of Bitcoin before you can use it to purchase a home.
You may be required to pay capital gains taxes when you sell Bitcoin. If you convert your cryptocurrency to cash before buying a home, you’ll need to be careful when reporting your Bitcoin gains to the IRS. That’s why it’s so important to work with a tax professional before liquidating your virtual currency.
Alternatives to Bitcoin When Financing a Home Purchase
When buying a home, you can choose from several alternatives to cryptocurrency. You could take out a conventional mortgage loan, which is any loan not insured by a government agency. The most popular conventional mortgages come with terms of 15 or 30 years. Depending on your situation, you might qualify for a conventional mortgage with a down payment as low as 3% of your home’s final purchase price.
You can also apply for loans insured by government agencies. These loans usually have lower credit score requirements and may allow a lower down payment. You can apply for a Federal Housing Administration (FHA) loan, which may allow a down payment as low as 3.5% of your home’s purchase price; a U.S. Department of Agriculture (USDA) loan, which requires no down payment from buyers purchasing in designated rural areas; or a U.S. Department of Veterans Affairs (VA) loan, which also requires no down payment and is available to eligible veterans, service members and spouses.
The Rundown on Buying a House With Crypto
Buying a home with Bitcoin or another virtual currency is still a rarity. It might be difficult to find a seller who’s willing to accept cryptocurrency. Plus, finding mortgage lenders that will let you make mortgage payments with crypto is even rarer.
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The Short Version
- Even with the rise in popularity of cryptocurrency, you’ll still struggle to find mortgage lenders who accept payment in virtual money
- Some lenders may accept cryptocurrency to cover a down payment or closing costs
- During the home buying process, you may be able to leverage crypto using workarounds