Can you buy a house with bitcoin?

Jenna Hall is Content Marketing Coordinator at Redfin. Redfin does not provide legal, tax or financial advice. This article is provided for informational purposes only and is not a substitute for professional advice from a licensed attorney, tax practitioner or financial advisor.

From increased competition to low mortgage rates, the real estate market has undergone substantial changes over the past decade. One of the biggest changes is how homeowners pay to buy new homes. A recent Redfin report found only one in nine home buyers saved for their down payment by selling cryptocurrencies like bitcoin.

A few years ago, saving for a down payment or to buy a house with bitcoin would have been unthinkable, but today it is possible. A growing number of private home sellers, real estate agents and mortgage companies are accepting bitcoin as an alternative form of payment. So how can you buy a house with bitcoins and how can you determine if using your assets to buy your dream home is a good option for you? Here are some things to consider.

From increased competition to low mortgage rates, the real estate market has undergone substantial changes over the past decade. One of the biggest changes is how homeowners pay to buy new homes. A recent Redfin report found only one in nine home buyers saved for their down payment by selling cryptocurrencies like bitcoin.

A few years ago, saving for a down payment or to buy a house with bitcoin would have been unthinkable, but today it is possible. A growing number of private home sellers, real estate agents and mortgage companies are accepting bitcoin as an alternative form of payment. So how can you buy a house with bitcoins and how can you determine if using your assets to buy your dream home is a good option for you? Here are some things to consider.

Can you buy a house with bitcoin?

Yes, you can buy a house with bitcoins and other digital assets. You can leverage these assets in a number of ways, such as transacting bitcoin directly with a seller, qualifying for a mortgage or convert your assets into cash.

Transfer Bitcoin with a private seller

If you want to buy a house by simply transferring bitcoins, you must first find a seller who accepts bitcoins as payment.

Discuss with the seller the terms of exchange so that problems do not arise in the future. Since the bitcoin transfer has no paper trail, it is essential that you contact a legal professional to ensure that the proper paperwork and documentation regarding the purchase is created.

Use Bitcoin Holdings to Qualify for a Mortgage

The real estate market can be a complicated place and the process of qualifying for a mortgage loan can sometimes be confusing. For meaningful change to happen, buy-in from major mortgage companies like Freddie Mac is needed.

The good news for bitcoin holders is that Freddie Mac has clarified his position on the use of bitcoin in the mortgage qualification process. They indicated that you can use bitcoin to secure a mortgage in certain circumstances. Since the use of cryptocurrency in the real estate market is relatively new, Freddie Mac regularly updates its guidelines. Be sure to check out their latest newsletter for the most up-to-date information on using bitcoin to qualify for a mortgage.

Other mortgage lenders allow people to use their bitcoin holdings as collateral for their loans. If you plan to use bitcoin for get a mortgage, you must first ensure that you have all the necessary documents to support your claims and investments. To qualify for a bitcoin-backed mortgage, you will need documentation showing the original purchase, as well as documented proof of sale.

Convert to Cash

If you can’t find a seller who will accept bitcoin and you don’t want to use your holdings for a mortgage, you can still use bitcoins to buy a house by selling your holdings and converting them into cash.

Before selling, you will need to carefully document every step of the process, from the initial purchase to the eventual sale. If you fail to keep a valid paper trail, the bank or broker could deny your mortgage application or report the sale.

You will also need to ensure that your transaction is in US dollars and report any profit to the IRS. In the United States, bitcoin holdings are an asset similar to property, which makes them subject to capital gains tax, just like stock holdings.

If you plan to make large transactions, including selling bitcoin to buy a home, fund your down payment, or qualify for a mortgage, consult with legal and tax professionals to ensure the purchase is properly documented, all rules and regulations are followed and all taxes are paid and filed correctly.

Advantages and disadvantages of buying a house with bitcoin

While it’s possible to buy a house with bitcoins, there are many considerations to take into account when considering using your assets to pay for your dream home.

Advantages

Potential savings

A door-to-door seller could potentially see more value in bitcoin than in cash. If so, you might get a better price on a house if you pay in bitcoin. Using bitcoin to pay for a house can also make your offer stand out and give you a better chance of getting a house compared to other cash offers.

Fast payments

Similar to using cash, buying a home with bitcoins can speed up real estate transactions by eliminating the traditional mortgage process. This means that people using bitcoin can buy their house in minutes.

Diversification

One of the most important benefits is diversification. Using Bitcoin to buy a house allows you to branch out into the real estate market and diversify your portfolio.

Disadvantages

Volatility

Bitcoin’s volatility can cause hesitation, even if you currently have the funds to complete the transaction. The price of bitcoin can vary widely from day to day, making it difficult to determine the value of a home in terms of bitcoin.

Taxes

As mentioned earlier, when you sell bitcoin it is subject to taxes and it is easy to make a mistake when reporting profits and losses. If you make a mistake when reporting your transactions to the IRS and suddenly use bitcoin funds to buy a house or make a down payment, the IRS or a tax agency may report it.

Some businesses may not work with Bitcoin

Since Bitcoin is still relatively new, highly volatile, and difficult to connect to certain identities, many businesses do not transact with Bitcoin. It can be difficult to find a seller, mortgage lender, Real estate agent or a bank that will work with or accept bitcoin as a form of payment.

Bitcoin prides itself on its security and ability to keep transactions anonymous. This can be useful on the blockchain, but when buying a house, anonymous transactions could lead to potential legal issues. Additionally, since Bitcoin transactions are not reversible, it may be difficult, if not impossible, to get your money back in any disputes.

Special cases

Buying a home with bitcoins can be difficult if your real estate transaction has special conditions, such as lengthy inspections or unique seller/buyer contingencies.

Can you buy a house with bitcoin? Last things to keep in mind

If you’re considering using bitcoin in any capacity to help you buy a home, here are a few final things to keep in mind:

  • Paperwork, paperwork and more paperwork – Make sure you have reliable documentation at every step of the transaction process to protect yourself and the seller.
  • Taxes – In addition to capital gains tax, you will have to pay many taxes and duties when buying a house with bitcoins. Be sure to account for real estate commissions, county taxes, registration fees, etc.
  • Digital wallet – Some banks and credit card companies have prohibited the use of transactions involving bitcoins. If this is the case and you are transacting bitcoin directly with the seller, you may only be able to initiate a transaction through your digital wallet. Check with your financial institution or advisor for their specific guidelines and policies regarding digital wallet transactions.

This is a guest post by Jenna Hall. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.