Using Cryptocurrency when Financing a Home
Bitcoin and other cryptocurrencies are no longer just an alternative investment strategy for the more adventurous. They’re fast becoming an accepted way to pay for various things. There are now more than 100,000 merchants around the globe accepting Bitcoin payments. Just over a year ago, MB Confidential reported in February 2017 that for the first time in Southern California, a homebuyer used 3,300 bitcoins to purchase a Cape Cod-style mansion in Manhattan Beach for $3.225 million. And had the buyer waited another year, for the same amount of bitcoins, he could have purchased a few homes and a private Caribbean island, proving how volatile this market is.
Buying Property Using Bitcoin
It’s now also possible to buy a home with Bitcoin, and it’s not as difficult as many people would believe. The challenge for home buyers wanting to use cryptocurrencies to buy property is to understand how to overcome any potential obstacles to completing the transaction.
We reached out for comments to Thomas Bayles, Senior VP of Mortgage Lending for Thomas and Micah Mortgage Solution. Bayles has first-hand experience in facilitating the purchase of a home using Bitcoin. Founded in 2012 and based in Los Angeles, CA, Thomas and Micah specializes in out-of-the-box mortgage solutions, including assisting clients who wish to use cryptocurrencies to help fund the purchase of a home.
In an exclusive interview with The Scope Weekly, Bayles said
There aren’t so much legal obstacles as there are lending obstacles. Cryptocurrency embraces anonymity, which Federal Lending institutions dislike due to anti-money laundering laws and issues that contributed to the sub-prime mess/Great Recession.
The first US home sale involving Bitcoin was facilitated by Kuper Sotheby’s International Realty in 2017 in Austin, Texas. The transaction was completed using a coin exchange such as BitPay to convert the buyer’s Bitcoin into US dollars.
There are now many documented instances around the globe where properties have been bought and sold using Bitcoin to facilitate the transaction.
Not every seller will demand final payment to be converted into US dollars. Some may be happy to accept and keep Bitcoin as final payment, which allows the transaction to be completed directly.
Even if a buyer is able to locate a seller willing to accept an offer made in Bitcoin, there is still the challenge of finding escrow companies and title insurance underwriters who will agree to handle a cryptocurrency transaction.
Using Bitcoin as a Down-Payment Source
In the event the buyer doesn’t have enough Bitcoin to pay for the entire purchase price outright, it’s a fair assumption to believe they should be able to use their cryptocurrencies to cover the cost of the deposit amount.
However, there are some lenders who may refuse to use those funds as a valid down payment towards buying a home. Lenders may refuse a mortgage if they are unable to verify where the borrower obtained the funds in the first place.
Bayles said, “The biggest piece to this puzzle is that most exchanges operate accounts with no names or way of verifying the account is in fact the buyers/borrowers. Lenders typically want to see full name and account numbers on asset documentation, which makes utilizing cryptocurrency challenging.”
“Fortunately, we have the ability to piece together enough documentation that allows us to utilize these assets and fund buyers’ loans.“
In many cases, banks may insist that home buyers exchange their Bitcoins for US dollars. The cash then needs to be transferred into a recognized US bank account and held for at least 60 days. Only after the cash has been ‘seasoned’ will some banks allow the funds to be used as a deposit or down-payment on a home purchase.
“With our structure, there is no seasoning involved,” says Bayles, adding that the buyer will still need to liquidate funds within a week of closing escrow.
Challenges of Selling with Bitcoin
People selling a home face different challenges when agreeing to accept cryptocurrency on an offer from the buyer.
“As a seller, confidence that your buyer will perform and close escrow is key,” says Bayles.
“The amount of volatility in cryptocurrency can be worrisome since it is not uncommon for the assets to lose 30-50% of their value in short spans of time. This can pose major problems for a buyer entering escrow thinking they have $500,000 to spend and then have a crash dropping that $500,000 to $250,000. In this case, most buyers probably would not close/perform.”
Thomas and Micah have a strong history of helping home buyers understand and navigate the entire process, from submitting an offer to obtaining the correct financing structure to close escrow.
Bayles has this advice for any buyer hoping to jump into the real estate market using Bitcoin: “Double and triple check that your lender will allow you to use cryptocurrency assets for down payment or reserves before you even place an offer.”
“This will allow you to be proactive of their requirements before you enter escrow and avoid unnecessary stress during your home buying process.”