Crypto Mortgages: How You Can Buy a House Using a Crypto-Backed Loan

The latest crypto boom has created fortunes for many, and some of them are looking to buy real estate with their new riches.

There are plenty of examples of real estate developers who are keen to accept cryptocurrencies as payment, but for certain crypto investors, selling their digital assets is a no-go.

For them, crypto mortgages – loans for buying real estate where the collateral is crypto – is the solution.

Last August, United Wholesale Mortgage, the second-largest mortgage lender in the U.S., announced a plan to start accepting bitcoin payments, but backed off a few weeks later.

United Wholesale Mortgage's reversal, however, didn’t scare new players away from bringing mortgages to the crypto world, as a handful of lenders are rolling out plans to offer crypto-backed loans specifically for homebuyers.

Read more: How to Buy a House With Crypto: US Edition

How crypto-backed mortgages work

On a high level, crypto mortgages work in a similar vein as old-fashioned mortgages. The only difference is that the collateral are digital asset holdings.

If you take out a crypto mortgage, the lender first checks your crypto holdings to assess how much you can borrow. This is the most important factor in the decision, because crypto mortgage lenders won’t necessarily require credit history and paycheck stubs, although it doesn’t hurt to have those ready.

After the lender decides the terms – how much you can borrow and at what annual interest rate – you have to pledge an amount of your crypto holdings to the lender as collateral of the loan. That is usually equal to 100% of the loan. For example, the collateral would be $400,000 worth of digital assets for a $400,000 loan.

When you close the loan and buy the real estate, you start paying back the loan in monthly installments that can be paid in selected cryptocurrencies or in traditional fiat.

As the market grows and competition increases between lenders for homebuyers' crypto riches, one can expect offerings and accepted digital assets to broaden.

Where can you get a crypto mortgage

Crypto mortgages are still quite a new phenomenon, but there are a growing number of lenders that let homebuyers leverage their digital wealth. All annual percentage rates are current as of the time of writing.

• Milo, a Florida-based startup, made headlines early this year for being the first to offer crypto-backed mortgages in the U.S. for prospective homebuyers. The firm specializes in mortgages for real estate investment purposes and offers 30-year loans of up to $5 million with rates ranging from 3.95% to 5.95%. Milo doesn't require a down payment (the borrower can finance up to 100% of the property’s value), and it accepts bitcoin (BTC), ether (ETH) and a few stablecoins (USDC, USDT, Gemini USD) as collateral.
• USDC.Homes offers crypto mortgages for those who want to buy real estate in Texas. The lender accepts bitcoin, ether, USDC and other cryptocurrencies as collateral to borrow up to $5 million for a 5.5% to 7.5% APR. The down payment of the crypto mortgage is staked, so borrowers accrue interest on the collateral offsetting a part of the monthly mortgage payment.
• Figure, a North Carolina-based lender, opened a wait list for crypto mortgage loans of up to $20 million. It plans to accept bitcoin and ether as collateral and offer 30-year fixed rate mortgages with monthly collateral adjustments for as low of an annual rate as 6%.
• Ledn offers bitcoin-backed loans in Canada and is planning to offer bitcoin mortgages to clients in Canada and the U.S. this year.

Who are crypto mortgages for?

At this time, crypto-backed mortgages aren't the ideal way for most people to buy a new home.

But it can be an interesting option for those homebuyers who have built wealth mostly held in cryptocurrencies and who don't want to sell their crypto investments.

Read More: Location, Location, Location: Investing in Real Estate in the Metaverse

Pros of crypto mortgages

If you are one of them, there are some perks of leveraging your crypto holdings for a loan:

• First and foremost, you don’t have to cash out of your crypto investments to buy a house with a crypto mortgage. This is important because selling your investments would incur capital gains taxes.
• It might be easier for foreign citizens to buy real estate in the U.S., as crypto mortgage providers usually don’t require credit score and a social security number.
• For someone who believes their crypto holdings will appreciate more substantially than the rate of the loan over time.

Risks and downsides of crypto mortgages

The reason a crypto mortgage isn’t right for most people is simple: Crypto’s price is highly volatile, making them high-risk investments.

If you take out a loan on top of your crypto investments, the risks are compounding. When cryptocurrency markets crash, they bring down the value of the collateral, too.

In this case, two things can happen:

• When the price of the digital assets you have put up as collateral drops, the lender may require you to add more of your investments to the collateral – akin to a margin call in traditional markets. This way, your capital is locked and you cannot trade it.
• If the market value of the collateral falls even deeper, the creditor might have to liquidate – force sell – your assets for a fraction of the price of the investment you have put into it.

There are other downsides of taking out a mortgage loan backed with a cryptocurrency portfolio:

• Borrowers don't have control over the assets used as collateral, meaning that they cannot trade or otherwise use the crypto pledged.
• The range of cryptocurrencies that providers accept is limited.