Buying a Home with Crypto: A Cautionary Tale of FOMO and Fiats

Are you thinking about buying a home with your crypto? Well, hold onto your digital wallets! This October, we saw Bitcoin do the cha-cha, soaring higher than your neighbor’s Halloween skeleton from Home Depot. Now before you rush to cash in that crypto fortune for a down payment, remember: FOMO (Fear of Missing Out) is real, and you might just find yourself asking, “What Was I Thinking?!”

As more first-time homebuyers explore using cryptocurrency for their down payment, it’s essential to recognize that this option isn’t all rainbows and moonlit blockchain dreams. Here’s a simplified overview of what you need to consider before diving headfirst into the crypto real estate pool.

Key Points to Understand

1. Volatility:
Cryptocurrencies can change in value faster than you can say “pump and dump.” Be prepared for your asset to swing wildly while you’re trying to buy that charming little bungalow. Remember, that 20% increase today might vanish faster than the bowl of candy you set on your front porch on Halloween night.

2. Industry Perception:
Whisper the word “crypto” in a room full of traditional lenders, and watch the room freeze like a deer in headlights. Many lenders are still cautious about accepting crypto for down payments, so don’t be surprised if they look at you like you just suggested trading your firstborn for a mortgage.

3. Crypto as an Asset:
Sure, you can list your cryptocurrency as an asset on your loan application, but some lenders might hesitate due to its infamous volatility. Unlike other assets, you can’t always use it as reserves. Lenders generally want to see reserves equal to a certain number of months’ worth of mortgage payments (principal, interest, taxes, and insurance). This can range from 2 to 12 months, depending on the lender, your creditworthiness, and the type of loan.

4. Investor Caution:
Most investors are wary about financing a loan with crypto as a down payment, which could lead to extra scrutiny during your mortgage process. It may feel more like a visit to the dentist than a joyful home-buying experience.

Documentation You’ll Need

1. Wallet Verification:
Underwriters will likely require proof of your cryptocurrency holdings. You’ll need to provide a PDF statement with your name, which some wallets may not even supply. Good luck trying to convince your wallet provider to cough it up!

2. Anonymity vs. Transparency:
While crypto offers a level of privacy, lenders want clear documentation of your funds over the past 2-3 months. It’s like trying to hide your Halloween candy stash from your kids—every penny has to be sourced.

3. Getting Statements:
You might have to contact your wallet provider for the necessary statements.  Good luck getting a human on the phone. Be prepared to open a support ticket and wait… and wait. This can get stressful when you have earnest money on the line.

Liquidation Process

1. Timing:
Once your assets are approved, you’ll need to convert your crypto into fiat currency (like good ol’ dollars) right before closing on your home. Timing is everything—like Cinderella trying to catch her carraige!

2. Avoid Frequent Withdrawals:
Keep your hands off those funds during the approval process. Frequent withdrawals can raise red flags with underwriters and lead to some awkward questions—like why you just bought a new gaming rig right before closing.

3. Plan Ahead:
Make sure those funds are sitting pretty in your checking account by the closing date. You don’t want to cause any risky and unnecessary extensions on the agreed upon timeline.

Important Considerations

1. Taxes:
When you sell your crypto, don’t forget Uncle Sam is waiting to collect. Short-term capital gains tax can range from 10% to 37%, depending on your income. Think of it as the price of admission to the real estate game.

2. Moving Wallets:
Transferring crypto between wallets generally doesn’t trigger a tax event, so if you’re looking to shuffle some assets around, this might be the way to go.

Conclusion

Using cryptocurrency for a down payment is feasible but requires careful planning and documentation. To streamline the process, consider selling your crypto first and letting the funds “season” in your bank account for 2-3 months before seeking a pre-approval from a lender and going to view homes.

Beyond the complexities of home buying, such as market volatility, documentation challenges, and tax implications, it may be more advantageous to explore other financing options. Securing a low mortgage rate or utilizing first-time homebuyer programs can help you purchase a home while keeping your crypto investments intact. This approach allows for diversification of your investment portfolio and provides cash reserves for emergencies.

If you have questions or need guidance, don’t hesitate to reach out. Timing is personal, and you might find the perfect home before you’ve cashed out. I’m here to help you turn your digital currency into a tangible asset if you decide this option is right for you. Happy house hunting!