Many Americans are using their stashes of cryptocurrency to fund down payments for a home in a trend that looks like it’s here to stay.
Almost 12% of first-time buyers shared that they sold their holdings to help fund a down payment for a house, according to a survey by Redfin held in the fourth quarter of last year and cited by MarketWatch.
Cash savings still serve as main funding source
In comparison, the number was just under 9% in the third quarter of 2020, up from 4.6% y/y. The number of first-time buyers who relied on their relatives for money for their down payment was also around 12%.
Just over half of first-time home buyers built their down payment by saving money from their salary.
Redfin chief economist Daryl Fairweather commented:
Crypto is one way for people without generational wealth to win a lottery ticket to the middle class.
The analyst drew attention to cryptocurrencies’ potential as a down payment savings driver as millennials and Gen Z dominate the property market. People in these age groups are also more likely than older people to invest in cryptocurrencies such as Bitcoin, Ethereum, and Dogecoin.
How do you do it?
The process of using crypto earnings to fund a home purchase is far from simple and straightforward.
You can’t just show your balance on eToro or Coinbase or transfer your crypto investments and expect that will be enough for the lender and the company’s requirement for a proof of funds.
You need to cash out your crypto investment into a bank account, just like you would if you made money from the stock market.
Mass efforts to update lending software
The real estate property sector is struggling to update lenders’ software and procedures to account for crypto, an increasingly popular asset. Generally, lenders will ask for a paper trail, showing a transaction history for the crypto account over the past 1-2 months.
However, cryptocurrency accounts are not like banks and don’t always issue monthly statements. As a result, many lenders will ask the borrowers to cash out their crypto investments in the early stages of the process.
Chris Birk, director of education at mortgage company Veterans United, told MarketWatch in an interview:
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 be documentation to satisfy the lender.
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