How Cryptocurrency Assets Affect Your Ability to Qualify for a Mortgage
With the rise in popularity of cryptocurrency investing and trading, many people have a significant portion of their wealth held in a cryptocurrency. While cryptocurrency presents exciting opportunities for investors to take advantage of a new technology and diversify their portfolio, this technology is so new that traditional financial institutions are mostly uncertain how to deal with these assets.
Consequently, if you are wanting to apply for a mortgage and have a significant amount of your wealth held in cryptocurrencies or receive a significant portion of your income in the form of cryptocurrencies, qualifying for a mortgage can quickly become a tricky endeavor.
The most common questions that people often ask who hold cryptocurrency and want to apply for a mortgage are:
- Can I pay my mortgage with crypto?
- Does crypto count as income?
- Can cryptocurrencies be counted in asset calculations as a basis for repayment obligations?
While every lender can set their own guidelines, given the novelty of cryptocurrency and uncertainty of financial regulations surrounding cryptocurrency, so far virtually all major lenders will not accept cryptocurrency as a form of payment or consider it for mortgage qualification calculations.
Fortunately, though, if you have a significant amount of your wealth or income in the form of cryptocurrency, there are strategies that you can employ to use crypto wealth or income to help you qualify for a mortgage.
How Mortgage Lenders View Cryptocurrency
Freddie Mac (FHLMC), one of the largest mortgage lenders in the US, recently released guidelines on how it will deal with cryptocurrency assets. The main points were:
- Income paid to the Borrower in cryptocurrency may not be used to qualify for the Mortgage
- For income types that require evidence of sufficient remaining assets to establish likely continuance (e.g., retirement account distributions, trust income and dividend and interest income, etc.), those assets may not be in the form of cryptocurrency
- Cryptocurrency may not be included in the calculation of assets as a basis for repayment of obligations
- Monthly payments on debts secured by cryptocurrency must be included in the Borrower’s debt payment-to-income ratio and are not subject to the Guide provisions regarding installment debts secured by financial assets
- Cryptocurrency must be exchanged for U.S. dollars if it will be needed for the Mortgage transaction (i.e., any funds required to be paid by the Borrower and Borrower reserves)
United Wholesale Mortgage, the second largest lender in the US, recently decided against moving forward with its plan to accept Bitcoin as payment for mortgages. United Wholesale Mortgage expressed that not only would they incur additional costs by accepting Bitcoin as a form of payment, but the regulatory uncertainties surrounding cryptocurrency and the lack of demand of customers wanting to pay in Bitcoin caused them to reconsider and scrap the project.
Because of its constantly changing valuation, lenders are hesitant to consider crypto income when calculating your income. Additionally, unlike other securities such as stocks, lenders will not consider the valuation of your crypto holdings when determining your basis for repayment obligations, because of the volatile changes in valuation
How You Can Use Your Crypto to Help You Qualify for a Mortgage
There is good news though if you store a significant amount of your wealth or receive a significant portion of your income in crypto. Fortunately, you can use your crypto wealth to help you qualify for a mortgage.
The main reason that lenders don’t look at crypto is because it’s hard for them to gauge what it will be worth in the future. Because of this, you will need to convert your crypto to cash in order to apply it towards mortgage qualification calculations. If you are primarily paid in crypto, this means you will likely need to regularly convert a certain amount of your crypto into cash to satisfy the income requirements for the loan you are trying to obtain.
If you are thinking about applying for a mortgage and hold a substantial amount of your wealth in cryptocurrencies and/or receive a substantial amount of your income in cryptocurrency, our real estate experts to discuss how we can help you qualify for the mortgage you want to obtain. Contact us today at 602-562-7218 to schedule an initial consultation for your Arizona LLC or make an appointment on our contact us page