May 7, 2021
What can consumers who own Ethereum or other cryptocurrencies do with these funds? There are many platforms for buying and selling virtual currencies themselves, and more shopping options open up for Bitcoin and other crytpo all the time. Some house hunters who are invested in cryptocurrencies are wondering whether it is possible to make a down payment on a home with Bitcoin or other virtual cash.
The answer to the house buying question depends on the nature of the transaction–for example, an arrangement between a seller and a buyer involving Bitcoin may be possible if all parties can agree. But what about when a lender gets involved?
If you have a situation where a buyer wants to use Bitcoin or other virtual currencies to make a down payment on an FHA home loan, can the transaction be approved? Can your lender accept a down payment gift that is in the form of Bitcoin or sourced from Bitcoin assets?
Using Bitcoin For A Down Payment
FHA mortgages (including the FHA One-Time Close construction loan) do not permit borrowers to use Bitcoin, Ethereum, or other virtual currency to make a down payment on your home loan.
One of the reasons? Bitcoin, Ethereum, and other virtual currencies are not considered cash in the United States (by the IRS) but are viewed as assets instead.
Why can’t you make a down payment using Bitcoin no matter what the IRS says? Because you can’t make a down payment using gold, rare antiques, or cattle, either. None of those are considered cash, and for mortgage purposes, neither is Bitcoin.
And even if the lender permitted using cryptocurrency to buy real estate, doing so could complicate your tax filings.
The official site for the IRS also reminds consumers, “The sale or other exchange of virtual currencies, or the use of virtual currencies to pay for goods or services, or holding virtual currencies as an investment, generally has tax consequences that could result in tax liability.”
Why Not Just Convert To Cash?
Some who want to use virtual currency to make a home loan down payment are likely asking at this stage wy they shouldn’t just convert crypto to cash for the down payment. Your lender’s requirements will include having proper sourcing of your down payment funds; those funds must not come from unapproved sources like a payday loan or credit card cash advance.
Some lenders may permit a down payment using money sourced from a cryptocurrency conversion to cash–but this depends greatly on the type of loan, on the lender, and the borrower’s ability to meet certain requirements.
Some lenders may require you to keep that money in an escrow account for a certain amount of time (known as a seasoning period) before you can use it to make a down payment.
Remember, down payments must be made in cash, and that cash must be properly sourced. This is an issue that can shut down a home loan process in its tracks if the requirements are not met, always ask your lender when in doubt about the correct procedure.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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