Using cryptocurrencies to buy a home
The real estate industry is uniquely positioned as we look at changes over time. When it comes to buying and selling property, many parts of the process have remained the same for decades and decades while other features of real estate can change on a yearly basis, or sometimes even a shorter timeline. At Mortgage Maestro we try to keep our clients up to date on these more frequent changes and newer topics. A great example is the rise of cryptocurrency, so let’s take a look at crypto and how it might be used in a real estate transaction.
Cryptocurrencies like Bitcoin and Ethereum are digital assets designed by software engineers to be used as mediums of exchange. These coins are minted or ‘mined’ using computers and can be bought and sold on public exchanges or transferred between private owners for goods and services. Because cryptocurrencies do not exist physically, transfers are recorded on a decentralized ledger or “blockchain” that is intended to provide a secure record of ownership and transactions. This hopefully secure record of exchanges is what allows cryptocurrencies to also be exchanged for regular currency and other assets. The most popular of cryptocurrencies, Bitcoin, was first released in 2009 by an anonymous inventor known as Satoshi Nakamoto, and has been used to buy everything from used video games and baseball cards to —you guessed it—real estate.
As anyone who has spent even a short amount of time exchanging cryptocurrency can tell you, consistency can be a problem. When you go down to the store to buy a gallon of gas, you know that your $20 bill is always going to be accepted as $20. With Bitcoin or other digital coins, you could try to make a trade on Thursday when your coin is worth $10, only to find out that it is worth $15 two days later. Cryptocurrencies are notoriously unstable in their value, due in part to their recent adoption and retail investors looking to get rich quick (among other reasons). The swings in value may not be such a problem when you are trying to pay your friend for dinner using Ethereum, but buying a car or a new house can be a different story.
The idea of using cryptocurrencies to purchase real estate is still very new. Plenty of traditional lenders will simply tell prospective buyers that they need to convert their Bitcoin or Ethereum into cash before opening up a mortgage or a home purchase, but that is slowly changing. There is a great deal of interest in using cryptocurrencies and associated smart contracts to facilitate peer-to-peer real estate transactions, cutting out middlemen. This would allow buyers and sellers to both agree to a transaction at the same time, i.e. when the price of a digital coin is relatively stable. That process is more difficult if you are talking about the timeframe of a normal home sale or purchase using a bank, which can take weeks or months. Additionally, government backed agencies like Fannie Mae and Freddie Mac do not consider cryptocurrency to be a legitimate source of funds for homebuyers. For now, your best bet may be to convert crypto holdings into cash for real estate purchases, but there is no doubt that the industry is working to incorporate the needs of crypto owners.
Have questions about using cryptocurrencies to purchase a home? Contact Mortgage Maestro Group to learn more!