Cryptocurrency was once viewed as a futuristic concept with no firm roots in economic activities, but this has changed. Bitcoin and other cryptocurrencies are increasingly used as investments, and many companies are now accepting them as currency for the purchase of their goods. If you have a sizable investment in cryptocurrency, you may be wondering if you can use those funds to make a down payment on a house. The good news is that you can, but the process is not as straightforward as you may like it to be.
Create a Plan
Lenders and financial institutions will not accept Bitcoin and other cryptocurrencies as a direct form of payment at closing. Likewise, title companies may not be able to work with this type of currency. This means that you will need to convert your cryptocurrencies to U.S. dollars before closing. Generally, lenders need to see that you have the down payment funds and closing costs in your bank account before the loan can be approved. Because of this requirement, you should plan to make the conversion at least several weeks before the closing date.
Monitor Price Fluctuations
Converting cryptocurrencies to U.S. currency is a relatively easy process that can be completed in a few minutes. However, cryptocurrency prices fluctuate dramatically, so you should plan to monitor the markets carefully before making your move. While your entire cryptocurrency conversion may be completed quickly, you may need to sit back and watch prices for several days or even weeks before they reach a level that you are comfortable with.
Convert Your Cryptocurrency
Depending on the platform that you use to trade and hold your cryptocurrency, the conversion process may be completed with a few clicks of a button. It may take more time to transfer your U.S. currency out of your platform’s wallet and into your bank account. Remember that this will inevitably have tax ramifications as well. Take stock in your net profit or loss so that you can plan ahead for your next tax filing.
Maintain Great Documentation
Lenders need to see a solid paper trail documenting any large deposits in your bank account over the last few months. If you convert your cryptocurrency to U.S. currency at least three or four months ahead of your purchase, you may be able to avoid the stress of documenting your transactions. Otherwise, the lender may require a written explanation of w. the money came from as well as full documentation to support your explanation. Keep in mind that you also may need to document the original purchase of the cryptocurrency as part of your documentation.
Do you plan to use cryptocurrency to cover your down payment or closing costs? Our MortgageDepot team is happy to guide you through the process. Contact us today to learn more about the documentation that may be needed to finalize your purchase plans.
Connect with one of our loan consultants to learn more.