The real estate market can be a complicated place and the process of qualifying for a mortgage can be extremely stressful especially for entrepreneurs and regular investors without a “stable income”.
The good news for cryptocurrency and bitcoin holders is that Fannie Mae has recently clarified its position on the use of cryptocurrency in the mortgage qualification process.
In its response to a leading mortgage broker, Fannie Mae indicated that Bitcoin could be used to secure a mortgage loan, but only if there was a full paper trail in place.
Having paperwork in place
If you plan to use your cryptocurrency holdings to secure a mortgage loan, you should first make sure you have all the paperwork to back up your claims and your investment.
Just like owning stocks, in order to qualify for a mortgage using cryptocurrency, you will need documentation showing the original purchase, as well as documented proof of the sale.
You will also need to make sure your transaction is conducted in U.S. dollars and that any profits are reported to the IRS.
If you plan to convert your cryptocurrency holdings into real estate, you will first need to sell the Bitcoin, Ethereum, Litecoin or other digital assets. Make sure you have all the paperwork in place to log the trail.
This will include having the purchase price, profit, and selling price. If you’ve made money in the crypto market in the past years, then you should consult a tax expert in helping you prepare all the paperwork.
To quickly summarize, it is possible to secure a mortgage using cryptocurrency as a source of income, but make sure you have all the paperwork in place.
Should you use cryptocurrency?
The biggest question might be whether or not you should consider using cryptocurrency.
One of the biggest advantages of using cryptocurrency is diversification. Instead of holding the bulk of your assets in volatile cryptocurrencies, you get to branch out into the real estate market which is much more stable.
If you were an early adopter in the Bitcoin, Litecoin or Ethereum revolution, you probably have accumulated a major return on investment. Taking some of that money off the table is a great way to protect yourself and diversify your investment portfolio.
Now one of the problems that come along with cryptocurrency is taxes.
As mentioned above, in order to use cryptocurrency for securing a mortgage or purchasing a home, you will need to have proper documentation of everything.
If you have been less than scrupulous at reporting your cryptocurrency transactions to the IRS, suddenly using those funds to buy a home or make a down payment could raise the ire of the tax agency, something you definitely do not need.
The last thing we want to see is the IRS knocking on your door for purchasing a house with cryptocurrency.
Even though not all lenders recognize, or even understand cryptocurrency a growing number of mortgage companies are taking these alternative forms of payment very seriously.
And homebuyers aren’t the only ones in the cryptocurrency game. Redfin found 75 listings nationwide in which the seller mentioned he or she will accept Bitcoin as payment.
Take a look at the graph below created by Redfin on the median home prices for Bitcoin:
“It’s hard to say whether the use of cryptocurrency to buy and sell homes is a long-term trend or just a blip based on the recent spike in value,” said Redfin chief economist Nela Richardson.
“In some ways, cryptocurrency investors have just won the lottery, and so it makes perfect sense to buy their dream home. On the other side of the ‘coin’, sellers probably wouldn’t accept lottery tickets as payment.”
It is possible to purchase real estate and secure a mortgage using cryptocurrency as long as you have everything in place. More and more home sellers are also accepting Bitcoin as a payment, so if you’ve made money from the craze, then it might be time to consider using your cryptocurrency profits as a way to diversify your portfolio.