Can We Use Crypto to Buy a Home? No!Daniel Dobbs2023-05-25T12:45:06-07:00
I apologize in advance for the “clunkiness/lack of transition” in the post below. The challenge was to preserve the substance of the press release (remove the mortgage-eese) and yet make it readable by my audience.
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Note: I’ve recently subscribed to a (free) info source, BlockChain Legal Source, that appears to be a good source for Crypto laws. To subscribe, click here.
The most common question:
Can a buyer purchase a home and use “crypto-currency” as a down payment or reserves or claim the Cryptocurrency as assets (for underwriting purposes), and the answer is: NO!
FHA, Fannie, Freddie, VA will not allow a home to be purchased using Cryptocurrency.
Will hard money lenders allow for the use of “crypto?” Probably not BUT that won’t stop hard money lenders from advertising that they “may” allow for it.
““Construction loan lenders”? You cannot use Bitcoin, Ethereum, or other virtual currency to “directly” to make a down payment on your home loan.
A private arrangement between a seller and a buyer involving Bitcoin MAY be possible if all parties can agree.
On December 1, 2021, Freddie Mac published Bulletin 2021-36 for Freddie Mac to provide updated eligibility criteria for qualifying mortgages.
According to the Freddie Mac press release:
“To address uncertainty regarding the treatment of Cryptocurrency in mortgage underwriting, the bulletin explicitly addresses requirements related to Cryptocurrency’s use in the mortgage qualification process”.
(The underwriting links are featured below that address the issues).
“These requirements include, among other things, that income paid to the Borrower in Cryptocurrency cannot be utilized to:
1) qualify for a mortgage and,
2) “cryptocurrency may not be included in the calculation of assets as a basis for repayment of [the] obligation.”
Cryptocurrency and Underwriting
When assets are invested in stocks, bonds, mutual funds, U.S. government securities, retirement accounts, or other securities are needed for closing, evidence of liquidation is required UNLESS the combined value of the assets is at least 20% greater than the amount from these assets are required for COE.
Regardless: Any amount of Cryptocurrency must be exchanged for U.S. dollars (if used as a source of funds) for the Mortgage transaction (i.e., any funds required to be paid by the borrower).
Borrower and Borrower reserves
Due to the high level of uncertainty associated with Cryptocurrency, we (Freddie Mac) have updated the Guide to address its uses in the Mortgage qualification process as follows:
• Income paid to the Borrower in Cryptocurrency may not be used to qualify for the Mortgage.
• For income types that require evidence of sufficient remaining assets to establish likely continuance (e.g., retirement account distributions, trust income, dividend, and interest income, etc.), those assets may not be in the form of Cryptocurrency.
• Cryptocurrency may not be included in calculating assets as a basis for repayment of obligations.
• Monthly payments on debts secured by Cryptocurrency must be included in the “Borrower’s obligation payment-to-income ratio and are not subject to the Guide provisions regarding installment debts secured by financial assets.”
Note: In other words, a borrower can’t claim “crypto” as assets, BUT if there are debts (listed on the credit report), the debt servicing IS calculated in the DTI. In other words, “it’s a lose-lose for borrowers.
