The good news is you can use digital cryptocurrency, or “crypto,” such as bitcoin to buy your first home, or at least help with the purchase. But because it’s fairly uncharted territory, there are a few things you should know about doing so. Learn more about how buying a house with cryptocurrency works, some strategies to consider, and the pros and cons of using bitcoin to purchase real estate.
How to Buy Your First Home With Bitcoin
So can you buy a house with bitcoin? Yes, you can. In fact, you can use any coins that the seller and buyer are willing to transact with, Andrew Daniels, real estate advisor and Crypto Certified agent with RE/MAX Alliance Group in Tampa, Florida, told The Balance in a call. Here are some of the options for buying a house with bitcoin (BTC).
Direct All-BTC Deals With Sellers
If you have enough bitcoin to pay the full purchase price of your first home, you can do a direct bitcoin transaction from digital wallet to digital wallet—if you can find a seller amenable to that sort of payment, which can be a challenge. The other option is to use a platform like BitPay, which can exchange your bitcoins into dollars. “Any property that’s for sale can be marketed with crypto, even if the seller wanted dollars,” Daniels said.
Selling Bitcoin for the Home Down Payment
Bitcoin can be a great source of funding for a down payment. In fact, one in nine first-time homebuyers (11.6%) surveyed in the fourth quarter of 2021 said they sold some cryptocurrency to put down money for a home. What is much less common is for lenders to accept bitcoin that hasn’t been cashed in. “I have heard of lenders that can use crypto as a down payment, but not Fannie/Freddie-type [conventional] mortgages,” Daniels said. In fact, Freddie Mac is clear that cryptocurrency must be exchanged for dollars in order to be part of the process to qualify the borrower for a mortgage.
Borrow Against Your Bitcoin
An emerging option is to look into a crypto mortgage. There are a few lenders that will let you borrow against your bitcoin holdings, allowing you to sidestep the usual underwriting hoops of a traditional mortgage. “If you’re purchasing a $300,000 house, if you have large funds in crypto, you can get a mortgage by putting up $300,000 of crypto,” Daniels said. On the plus side, this strategy allows you to keep your assets so they potentially may continue to make market gains. And because you aren’t selling the crypto, you won’t have to pay capital gains taxes.
How Buying a Home With Bitcoin Affects Your Taxes
Cashing out virtual currency such as bitcoin creates a tax event, similar to selling property. If you made a gain on your original purchase, you will have to pay capital gains taxes on it. Depending on how long you held the bitcoin before the sale, you either will pay short-term (if held for a year or less) or long-term (held more than a year) capital gains. Whether it’s short- or long-term will determine the tax rate you pay.
How It Works
Say you bought $10,000 worth of bitcoin and you cashed out when it was worth $50,000. You would have to pay capital gains on the $40,000 profit. If you originally bought that bitcoin more than a year ago, you’d pay a long-term capital tax rate of either 0%, 15%, or 20%, depending on your filing status and taxable income.
Pros and Cons of Buying a House With Bitcoin
Pros Explained
Can streamline the homebuying process: If you aren’t getting a conventional or government-backed mortgage, you won’t have to meet traditional underwriting standards, and you may get to closing more quickly. Borrowing against bitcoin lets you keep your cryptocurrency investment: No one wants to be the next “Bitcoin Pizza” guy. (A reference to when an early adopter of crypto decided to buy two pizzas with his bitcoin in 2010. Those same bitcoins could have been worth as much as $690 million—in November 2021, when the price of the coin briefly hit $69,000—had he held onto them.) That’s why, if you’re able to leverage your bitcoin without actually cashing it in, this could turn out to be a good long-term strategy. Can save on taxes: If you don’t cash in your bitcoin and instead buy with it directly, you can avoid paying capital gains taxes on your earnings.
Cons Explained
Could miss out on potential growth: Because bitcoin’s value fluctuates, you may end up losing out on the deal if the crypto price rises after the sale. Or buying a house this way could go in your favor, if the bitcoin value drops after the sale.Need to work with crypto-savvy people: Virtual currency is still in its infancy as far as real estate goes. If you’re intent on using your bitcoin as part of your purchase payment, seek out properties that are marketed as open to crypto. For example, Daniels uses third-party platforms that exchange bitcoin so sellers still can get paid in dollars.Cashing in bitcoin can cost you in taxes: The more you make with bitcoin, the more it will cost you in capital gains taxes when you sell it.
Should You Buy Your First Home With Bitcoin?
Doing a straight purchase with cryptocurrency such as bitcoin isn’t something Daniels recommends, because most investors in the space think bitcoin’s price eventually will rise. However, he sees borrowing against your crypto holdings as a growing trend. “I would never recommend borrowing against 100% of your holdings, however,” Daniels said. You want to have some cushion in your cryptocurrency account to protect against potential market swings.
When It Makes Sense
If you have a lot of bitcoin assets to tap into, but don’t want to pay capital gains taxIf you have more bitcoin available than what you need to borrow againstIf you prefer to keep your bitcoin for potential long-term gains and are willing to work with a lender that allows you to borrow against the holdingIf you have the opportunity to do a direct bitcoin purchase with a seller
When It Doesn’t Make Sense
If your bitcoin balance is minimal or recently lost a lot of valueIf you are risk-averseIf you prefer to go through the traditional mortgage process, or the seller does
