Can You Use Cryptocurrency as a Down Payment on a Mortgage?

Summary

With more people investing in cryptocurrencies like Bitcoin and Ethereum, governments are beginning conversations on how the currencies will be regulated. Big decisions on regulation and taxation are to be expected in the future, but in the meantime decisions have been made on everyday uses like using cryptocurrency in qualifying for a mortgage. This article with explore the requirements set by US government agencies for using cryptocurrency in a mortgage transaction, and will discuss how a borrower can prepare their crypto finances for a mortgage application.

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by Christian Scully

Cryptocurrencies have reached new levels of popularity with individual investors and institutions around the world. Amid a record breaking bull run, with currencies like Bitcoin and Ethereum gaining a combined total of nearly $1.5 trillion, it is estimated that over 15% of American adults hold some amount of cryptocurrency in their investment portfolios. 

With decentralized finance, or DeFi, projects gaining more steam and attention, bringing real use cases to market, more than simply a buy-and-hold asset, the future of financial technology is poised for exponential breakthroughs in the next decade. 

Since central governments have generally not yet made major policy decisions regarding regulation and taxation of cryptocurrencies, critics argue the high volatility and lack of current uses make cryptocurrency a poor investment. 

When it comes to uses, some investors - while buying and holding crypto for long term gains - would like to at least know they can use their crypto gains for something as generic as buying a home. After all, what good are major gains if you can't use them? 
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Fortunately, the Federal Housing Administration, Fannie Mae and Freddie Mac recently added clarifications to their qualifying guidelines addressing the use of cryptocurrencies in mortgage loans. 

For FHA loans and conventional loans being sold to Fannie Mae and Freddie Mac, borrowers are allowed to use cryptocurrency to qualify for a mortgage with the following requirements: 

• To use cryptocurrencies such as Bitcoin, Ethereum, Litecoin and other altcoins to qualify for a mortgage, the funds must be converted into US dollars and deposited into a US financial institution.
  
  
• The borrower must provide sufficient documentation showing the source of the funds used in the initial purchase of the cryptocurrency.

In the same way that US dollars need to be sourced by underwriters to ensure that down payment funds are not borrowed or obtained illegally, lenders are required to have proof that borrower cryptocurrency funds were legal and do not represent an unreported debt. 

This decision should make using cryptocurrency to purchase a home possible for many of today's borrowers. However if a borrower was sent cryptocurrency by another person, or is sourcing funds from multiple wallets, there may be challenges in providing clear documentation. ​
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+ Better Tip

If borrowers are hoping to use recent gains in cryptocurrency investments to purchase a home with a mortgage, they should prepare by making their transactions easy to follow with a paper trail. With any mortgage application, the more simple the finances, the faster and easier it is for the underwriter to approve the loan.

​Borrowers can consider keeping transactions within one main digital wallet. If borrowers commonly use cryptocurrency as to send and receive payments, they may want to keep those transactions in a separate wallet. If a borrower can show deposits from a US financial institution directly to a crypto exchange like Coinbase - either held in the exchange or transferred into another digital wallet - and then transferred directly back into the financial institution along with any capital gains, with no other transactions there to confuse an underwriter, they will be in a good position to get approved for the mortgage.