How To Buy A House With Crypto?

The property market has undergone numerous changes in the past few years — one of which is the rise of digital currencies. Did you know that 27 million people in the US currently own cryptocurrency? As of 2022, one in nine first-time buyers uses cryptocurrency as a down payment on a mortgage.

As per Bitcoin and Cryptocurrency Statistics for 2022 up to 40% of customers paying with crypto are new to the merchant.

A few years ago, such a thing wouldn’t have been possible. Today, it’s a growing opportunity for young house hunters. Read on to find out how you can purchase a house with your bitcoin or ethereum holdings.

Can you buy a house with bitcoin?

The house buying process is stressful enough without worrying about sourcing money for your home loan deposit. You have to negotiate everything from mortgage applications to building inspections

You’re likely only to manage a 7% deposit as a first-time buyer. On the other hand, repeat buyers, on average, offer a 17% deposit. Repeat buyers get better interest rates and loan terms and snap up the few properties available. However, you can use your bitcoin holdings to secure a home loan and compete against established buyers. Here’s how.

Transfer crypto with a private seller

Depending on how extensive your crypto holdings are, you could transfer crypto in return for the property. You would need to find a private seller willing to accept the type of crypto as payment. For instance, a seller may only accept bitcoin in exchange for their home, not ethereum. 

Transferring crypto has no paper trail. Accordingly, you must enlist legal assistance to ensure you create proper documents and face no future issues. If you find a willing seller, discuss the terms of the deal carefully.

Use crypto assets to qualify for a mortgage

Fortunately for crypto-holders, many mortgage lenders allow you to use a particular cryptocurrency to secure a home loan. As with a cash deposit, you can use your crypto holdings to qualify for a mortgage. You will likely need to show the necessary paperwork to prove ownership.

You should check with your lender as their guidelines might only accept crypto exchanges under specific circumstances. Since crypto is a relatively new addition to the property market, the guidance may change frequently. 

Convert crypto to cash

Your final option is to convert your crypto into cash. Before selling, you need to document every part of the process — from purchasing the digital currency to the sale. Your bank or lender might refuse your mortgage application without a valid paper trail. 

Additionally, you will need to report the transition to the IRS; it might be subject to capital gains tax. It’s best to speak to a legal professional to ensure you conduct everything according to the regulations. 

What are the pros and cons?

Let’s check out the pros and cons of buying your dream home with cryptocurrencies.

The pros of buying a house with crypto

  • Potential savings: You might secure a better price on your purchase than cash if the seller sees more value in cryptocurrency.
  • Fast payments: Buying a house upfront with crypto could speed up transactions; it could take as little as a few minutes to snap up your new home.
  • Diversification: Instead of holding most of your crypto investments, you can diversify your portfolio to include real estate, which is more stable.

The cons of buying a house with crypto

  • Volatility: Crypto is more volatile than real estate — some sellers and lenders might hesitate to accept crypto payments. 
  • Taxes: Selling crypto might trigger capital gains tax. Moreover, as it’s difficult to track, it’s easy to make mistakes reporting profits and losses to the IRS.
  • Crypto price appreciation: Over a long-term horizon, crypto-assets like bitcoin could significantly appreciate more than the value of a home in the same given time frame.  Hence, there lies an opportunity cost associated with buying a house.

What else should you keep in mind?

As crypto in real estate is a relatively new prospect, the situation changes. If you plan to take advantage of your crypto holdings to purchase your dream home, keep these things in mind:

  • Ensure you keep reliable documentation to prove the validity of your purchase to the bank, IRS, and seller. 
  • Check with your bank about their guidelines regarding digital wallet transactions. 
  • Read up on the taxes and fees you might have to pay when purchasing property with cryptocurrency.

Using your crypto holdings to secure your first home is an excellent way to diversify your investments and climb the property ladder. However, make sure you’re aware of all the ins and outs to avoid making the home buying process any more stressful than it needs to be.

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