Most of us have heard of Cryptocurrency, but many still struggle to understand what it is, how they can use it, and how it will affect them. Over the past couple of years, people are only getting more curious about the current crypto and real estate trend. At the end of May 2021, the largest known cryptocurrency real estate deal occurred in Miami for a 22 million dollar condo paid for in Bitcoin. This news shocked most because Cryptocurrency has a “high level of uncertainty with it,” according to Freddie Mac. Now, most people don’t have 22 million dollars worth of Cryptocurrency that they can spend on a home, so how can The average homebuyer use Cryptocurrency during the mortgage process?
The most common way people finance their dream home is by applying for a conventional mortgage loan. And now, Cryptocurrency may be able to help you qualify. According to Fannie Mae, a borrower can exchange their cryptocurrency capital gains into U.S. dollars, which is acceptable for a down payment, closing costs, and financial reserves. However, a borrower must provide documented evidence that they exchanged their Cryptocurrency into U.S. dollars and that it is being held in a U.S. or state-regulated financial institution. Also, the funds must be verified as U.S. dollars before the loan can close. In addition, it is essential to note that if a borrower’s income is paid in Cryptocurrency, it may not be used to help qualify them for a mortgage. Another factor that should be considered is that Cryptocurrency can not be included in the calculation of assets. It must be exchanged and seasoned before it can be considered as an eligible source of funds. Lastly, any installment debts secured by Cryptocurrency must be calculated into the borrower’s DTI ratio. By following these rules and regulations, a borrower could use Cryptocurrency during the mortgage process.
During the underwriting process, a borrower’s income and asset information are reviewed thoroughly to determine if they qualify for a loan. In addition, underwriting professionals follow specific rules and regulations, so how has Cryptocurrency influenced them? We asked MEP’s Underwriting Manager, Karen Ladouceur, a few questions about Cryptocurrency in the mortgage and real estate industry:
In your opinion, do you believe Cryptocurrency will play a big part in the mortgage industry in the next 3-5 years? “Absolutely, I believe Florida is one of the states with the most homes currently listed where Bitcoin is acceptable to the seller for payment, and there was a recent article I saw stating a property transferred in Florida using Venmo!”
Have you had to deal with Cryptocurrency in the underwriting process yet? If so, how often does it come up, and has it presented any issues? “We deal with it on a very small scale and in particular for assets, as income derived from or paid in the form of cryptocurrency is not an acceptable source of income for loan qualification.”
Does Cryptocurrency complicate the underwriting process? “Not really, the guidelines are pretty clear from both Fannie and Freddie regarding what has to be done in order to use cryptocurrency for the transaction, so as long as a borrower knows up front what they need to do, it should be relatively easy for them to convert it to U.S. dollars.”
Overall, there are many factors to consider and many guidelines a borrower must follow to use Cryptocurrency during the mortgage process. Still, it is an option and can help you achieve your dreams of homeownership if adequately documented. Cryptocurrency and real estate have just started to cross paths, and as new regulations are passed, it is crucial to work with one of our experienced loan professionals to help guide you through the homebuying process. Contact us today with any questions!