The real estate market has gone through some enormous changes in the past decade. The currency used to make down payments has started to change as well. Have you ever wondered can bitcoin pay for your home?
Just a few years ago, paying for a home with cryptocurrency would have been unthinkable, but today it is possible. And while not all lenders recognize, or even understand, a currency like Bitcoin, a growing number of mortgage companies are taking these alternative forms of payment very seriously. So should you buy your next home with cryptocurrency? Here are some things to consider.
Pros and Cons of Using Cryptocurrency
While buying a house and making a mortgage down payment with cryptocurrency is possible. There are many considerations to weigh when contemplating the use of Bitcoin to pay for the home of your dreams.
Volatility
For starters, the volatility of the cryptocurrency market should give you pause, even if you currently have the funds to make the transaction happen. How would you feel if the price of Bitcoin plunges a day before the closing, leaving you without the cash you need for the down payment?
Conversely, how would you feel if you sold your Bitcoin holdings to pay off your home, only to see the price of the popular cryptocurrency skyrocket? In the end, you could end up regretting the decision, much like the person who used their Bitcoin to buy a couple of pizzas when the coin was worth mere pennies.
Taxes
Next, there are the tax implications of using cryptocurrency. The rules governing the use of cryptocurrencies like Bitcoin is still somewhat vague. And it is easy to make a mistake when reporting profits and losses.
If you have been less than ethical at reporting your cryptocurrency transactions to KRA, suddenly using those funds to buy a home. Or make a down payment could raise the ire of the tax agency, something you definitely do not need.
Diversification
As you can see, using cryptocurrency to buy a home has some potential risks, but there are advantages as well. One of the biggest advantages is diversification. Instead of holding the bulk of your assets in volatile cryptocurrencies, you get to branch out into the real estate market which is much more stable.
If you were an early adopter in the Bitcoin revolution, you probably have accumulated a major return on investment. Taking some of that money off the table is a great way to protect yourself and your finances while buying a home and giving yourself a reliable asset.
How to Successfully Sell Bitcoin to Pay for Your Down Payment
The inherent volatility of the cryptocurrency market makes paying for the down payment in those funds impractical. You might feel great if the price of Bitcoin spikes in advance of the closing, but the opposite could happen just as easily.
If you plan to convert your cryptocurrency holdings into real estate, you will first need to sell the Bitcoin or other digital assets. But before you sell, you will need to fully document every part of the process, from the original purchase of the “coin” to the eventual sale. If you fail to keep a valid paper trail, the bank or broker could refuse your mortgage application.
You will also need to make sure your transaction is conducted in shillings and that any profits are reported to KRA. The taxing of cryptocurrencies like Bitcoin is complicated and there is still some vagueness to the rules and regulations.
If you plan to make any large cryptocurrency transactions, including selling Bitcoin to finance your down payment or qualify for a mortgage, it’s worth consulting a tax expert first. You won’t want to start your home buying experience with a big tax bill from KRA.
How to Use Your Cryptocurrency Holdings to Qualify for a Mortgage
The real estate market can be a complicated place and the process of qualifying for a mortgage can seem arcane at times. In order for any major change to take place, the buy-in of major players like CRB is required.
Related: Real Estate Investing in the Age of Bitcoin (and other Cryptocurrencies)