Bitcoin has only been around for ten years, but in that short time it has accomplished quite a lot. Bitcoin has proven useful as a decentralized currency and created an alternative to every currency before it that is backed by and controlled by centralized governments. Bitcoin and alternative cryptocurrencies have been in the news often over the last two years. First, for the spectacular run up in value in 2017 that made early investors returns that you couldn’t find in traditional markets. Bitcoin unfortunately stayed in the news in 2018 as it lost over 80% of its value from the peak in December 2017. While bitcoin has proven itself as a secure alternative to fiat currency, it has not proven itself to be a stable asset or store of value.
As the price has fluctuated The Reeves Team has had several questions from Bitcoin investors. Questions include if they can use their bitcoin to purchase a home or qualify for a mortgage. While some of the regulatory issues around Bitcoin are still unclear we will break down what we do know and how you can best use cryptocurrency when purchasing a home. We will also discuss the current process of selling your cryptocurrency to pay for your down payment, and if its possible to use your Bitcoin to qualify for a mortgage.
Before we jump into those topics we first want to provide a warning. As we have seen over the past two years Bitcoin is an extremely volatile asset. While using your cryptocurrency to make a home purchase could be a great decision there are also many ways in which it could go wrong. The first consideration to make is what happens if the price plummets. Are you planning on paying for the entire down-payment, or even the entire home in Bitcoin? If you are, it would be prudent to start moving funds from cryptocurrency into dollars. If you wait until the last minute to convert from Bitcoin to USD the price could plummet leaving you without the funds to close and possibly in breach of contract. The second consideration is if the price goes up. Are you mentally prepared to pull your funds out to purchase a house and have the price double the next day? Bitcoin can swing wildly in both directions so please make sure you are prepared for all scenarios.
Using Bitcoin to qualify for a mortgage
So lets tackle the big question the team often gets. Can I use my Bitcoin to qualify for a mortgage? We have even had situations where a client could not qualify if the amount of Bitcoin they owned was not included. When applying for a mortgage a bank will want to see verification of how you hold the funds that you have in your account. In the not to distant past if your funds were the result of selling Bitcoin or if the funds were still in Bitcoin, the bank was almost certainly not going to work with you. Much of the reason for not allowing funds associated with bitcoin was because Fannie Mae one of the largest players in the mortgage industry had not given Bitcoin the green light. Recently Fannie Mae has clarified its position and given us clarity on when Bitcoin can be used to help qualify for a mortgage. As of this writing it is possible to secure a mortgage using your cryptocurrency holdings. In order to qualify it is important to have exact documentation of the original purchase as well as documentation of any of the cryptocurrency that has been sold. This is great news for anyone who wants to turn some of their risky cryptocurrency assets into a much more stable investment in a home.
Using Bitcoin as a down-payment
If you do plan on selling your Bitcoin or other cryptocurrency to pay for the down payment there are a few other considerations. Again, documentation will be key as any holes in documentation could result in your mortgage application being rejected. In addition it is important to make sure you only transact in U.S. Dollars. If the currencies are converted into any other currency it can cause additional headaches and could also result in your application not going through. If you sell your cryptocurrency for a down-payment you will also need to be aware of the tax implications. Any profits you have made on your Bitcoin investment will need to be reported to the IRS. While there are still some gray areas with reporting cryptocurrency profits it is very clear in this situation that taxes will be owed on the profits you take from your sale.
If you have any additional questions about purchasing a home using cryptocurrency, or just buying/selling a home in general, please contact The Reeves Team. Let us know what you think about Bitcoin and if you think selling cryptocurrency to purchase a home is a good idea in the comment section below.
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