Many Americans are using their cryptocurrency reserves to fund down payments for a home in a trend that seems to be here to stay.
Nearly 12% of first-time buyers said they sold their assets to help fund a down payment for a home, according to a Redfin survey conducted in the fourth quarter of last year and cited by MarketWatch.
Cash savings remain the main source of financing
In comparison, this figure was slightly lower at 9% in the third quarter of 2020, compared to 4.6% year-on-year. The number of first-time buyers who relied on loved ones for their down payment money was also around 12%.
Just over half of first-time home buyers built their down payment by saving money from their paycheck.
Redfin Chief Economist Daryl Fairweather commented:
Crypto is a way for people without generational wealth to win a lottery ticket for the middle class.
The analyst drew attention to the potential for cryptocurrencies to drive down payment savings as Millennials and Gen Z dominate the real estate market. People in these age brackets are also more likely than older people to invest in cryptocurrencies such as Bitcoin, Ethereum, and Dogecoin.
How do you do?
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 to be enough for the lender and the company’s requirement for proof of funds.
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You must cash out your crypto investment in a bank account, just like you would if you were making money on the stock exchange.
Massive effort to update lending software
The real estate industry is struggling to update lender software and procedures to account for crypto, an increasingly popular asset. Typically, lenders will ask for a paper trail, showing a transaction history for the crypto account over the last 1-2 months.
However, cryptocurrency accounts are not like banks and do not always issue monthly statements. As a result, many lenders will require borrowers to cash out their crypto investments in the early stages of the process.
Chris Birk, director of education for 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.