When Terrance Leonard’s dream home came on the market, the one with a big yard for his dog, he pulled the trigger.
It was a $650,000 home and all he had was a bunch of cryptocurrency investments to cover a down payment and as proof of funds for the mortgage he took out to buy the home.
He opted for a mortgage, rather than buying the home outright, because of the low interest-rate environment.
The process, as he would find out, wasn’t as simple as transferring his cryptocurrency holdings to the relevant parties.
How did he do it?
Around two years ago, Leonard went all-in on crypto only because he believed in the potential of crypto. He sold all of his stocks, 401(k), everything and moved it all into crypto.
He invested in long-term and target coins that are well-positioned for longevity. That means no meme coins, like Dogecoin.
He looked for the Googles and Apples of Cryptos.
He looked at the top 10 coins, and went from there. Some of his investments were in bitcoin BTCUSD, Ethereum ETHUSD, and Chainlink, a cryptocurrency launched in 2017 that sends real-world data to blockchains.
When it was time to put the downpayment for his dream home, he reached out to his lender, Veterans United Home Loans, to see if he could refinance the loan on his first home to convert it into an investment property, which would allow him to get a VA loan for his new home. Ultimately, that wasn’t possible.
So when Leonard had to get another loan to purchase the property that caught his eye, he figured he would use his crypto profits for his down payment and the earnest-money deposit.
But, there were some issues with proof of funds. He couldn’t say, ‘Here’s my wallet.’
He couldn’t just transfer over the crypto investments or show his account on Coinbase to satisfy the lender and his title company. Instead, he needed to cash out into a bank account, like someone might do with money earned in the stock market.
The process might have been easier had Leonard sought out a home from a real-estate broker who specializes in transactions involving cryptocurrency.
Some brokerages have begun listing properties where the seller only wants to be paid in cryptocurrency, sometimes specifying a specific investment vehicle. Unfortunately for Leonard, those brokerages didn’t have the types of properties he wanted, plus he wasn’t necessarily inclined to make an all-cash (or rather, all-crypto) deal.
For lenders, the paper trail is key
In the mortgage and real-estate industries, the use of cryptocurrency investments to purchase homes is still very much a novel concept. And lenders are still wrapping their heads around how to treat those assets.
Crypto is such a new concept that it’s a challenge to even determine how many loans have involved home buyers with crypto investments.
Right now, lenders are flying blind with these prospective borrowers, as regulators and other mortgage entities are only just beginning to put out guidelines for how to gauge the soundness of crypto assets.
Fannie Mae FNMA, -0.94%, one of the two government-sponsored enterprises that securitizes a majority of the mortgages nationwide, requires proceeds from bitcoin and other digital currencies to be converted into U.S. currency for them to be eligible assets when underwriting a loan.
You can’t pay your closing costs with a Van Gogh — it’s the same with your bitcoin. It’s going to have to be converted, it’s going to have to be seasoned and there’s going to have to be documentation to satisfy the lender.
In part, this strict approach is reflective of mortgage companies’ responsibilities to flag potential criminal behavior like money laundering. Underwriters need to be able to see potential red flags, which isn’t as easy with crypto wallets per se.
Leonard’s experience is proof eternal that cryptocurrencies still have a long way to go towards conventional acceptance but it has started.
So when you start investing in crypto, you should be in there for the long haul.