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Viaframe/Getty Images June 03, 2022 Jeff Ostrowski covers mortgages and the housing market. Before joining Bankrate in 2020, he wrote about real estate and the economy for the Palm Beach Post and the South Florida Business Journal. Michele Petry is a senior editor for Bankrate, leading the site’s real estate content. Bankrate logo The Bankrate promise
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Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Buying or selling a home is one of the biggest financial decisions an individual will ever make. Our real estate reporters and editors focus on educating consumers about this life-changing transaction and how to navigate the complex and ever-changing housing market. From finding an agent to closing and beyond, our goal is to help you feel confident that you're making the best, and smartest, real estate deal possible. Bankrate logo Editorial integrity
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A crypto real estate case study
When property investor and real estate broker Gabrielle Channell saw a Tampa, Florida, condo hit the market in early 2022, she was immediately interested. Homes are in short supply everywhere, and Channell had been hoping to buy a unit in the development. But when she learned the condo was being auctioned as a non-fungible token, or , and that the transaction would be denominated in the cryptocurrency USDC, a so-called tied to the U.S. dollar, she was confused. “I said, ‘How the heck are we going to do that?’” Channell recalls. After a crash course in cryptocurrencies, digital wallets and blockchain technology, Channell and her husband moved more than $200,000 from U.S. dollars into USDC. In March, they paid $215,000 for the unit. , the blockchain company that arranged the transaction, calls it the first U.S. sale of a piece of physical real estate as an NFT. Channell lauds the transparency of the NFT transaction. As a Florida-based Realtor, she is familiar with the secretive dance that accompanies traditional bidding wars. But keeping with the blockchain’s proof-of-work ethos, bidding and counter-bidding for the Tampa condo took place before her eyes. “You can see how much other people are bidding, and who’s bidding, so it’s much more transparent,” Channell says. Consumers are not happy with the current process. It’s opaque, it requires many, many documents, it’s not secure and it’s very stressful for the consumer. — Natalia Karayaneva The blockchain technology underlying cryptocurrency has the potential to revolutionize the home-buying process, says Natalia Karayaneva, founder and CEO of Propy. “Consumers are not happy with the current process,” she says. “It’s opaque, it requires many, many documents, it’s not secure and it’s very stressful for the consumer.” Propy is now marketing a few other properties for sale as NFTs as well.
Crypto mortgages make their debut
In 2021, excitement about cryptocurrency reached a crescendo. Bitcoin briefly soared past $60,000. In response, crypto-savvy financiers began looking for ways to cater to mortgage borrowers with sizable stakes of virtual money. An early offering came from , a mortgage company that announced a new type of mortgage for true believers in Bitcoin: Homebuyers would no longer have to sell their Bitcoin to buy a home. Selling Bitcoin to buy property means incurring a tax bill on the and foregoing any future appreciation in Bitcoin. Instead, Milo said, borrowers could keep their Bitcoin and pledge it as collateral for a mortgage. Milo requires borrowers to keep an amount equal to the mortgage balance in Bitcoin — so borrowing $1 million means pledging $1 million in Bitcoin. As of June 2022, Milo is advertising mortgage rates of 5.95 percent to 6.95 percent on its crypto mortgages, and it has expanded the list of acceptable collateral to include Ethereum. Other niche lenders have followed suit. Companies including Abra, XBTO, USDC.Homes, Ledn and Figure Technologies have announced crypto mortgages. Details vary from one lender to the next, but crypto mortgages can have high minimum balances and geographic restrictions. XBTO, for instance, said in the spring of 2022 that its Bitcoin-backed mortgages were available only in amounts of $1 million or more and only in Florida — although it’s working to expand its geographic availability to all 50 states. This type of loan comes with an obvious downside, though: If the value of a borrower’s crypto holdings falls below the amount of the loan, the borrower has to come up with extra collateral.
Pros and cons of buying real estate with cryptocurrency
Before we consider pros and cons, we have to first acknowledge that crypto deals are done by almost no one in real estate right now. Few homebuyers own substantial sums of cryptocurrency, and most lenders, real estate firms and other industry players don’t accept it as payment. But for those situations where it is an option, here are a few things to weigh. Pros
Smart contracts
Because cryptocurrency is digital and relies on the blockchain, it could revolutionize the way real estate transactions are recorded. In theory at least, a crypto transaction should be able to replace the mountain of paperwork that most typically involve. Tokenizing home purchases
Using the blockchain means it’s possible for properties themselves to be traded online in the same way cryptocurrency tokens are — and virtual property can be traded, too. All these practices are still in their infancy, though, and it’s unclear whether blockchain will catch on in this way. Fewer intermediaries
If blockchain backers have their way, its application in real estate could eventually mean fewer middlemen in your transaction. If that ever becomes reality, you may pay less in fees and see a more efficient closing process. But that future remains a long way off, so don’t expect to avoid agents, lawyers and , even in a Bitcoin transaction, any time soon. Cons
Hackers
Because cryptocurrency is digital, it is susceptible to hacking. Hackers have been known to disrupt areas of blockchain, which could result in unsafe real estate transactions or even the loss of the currency itself. Fraud
Real estate transactions today take time and lots of paperwork, which is in large part to make them less susceptible to fraud. A more streamlined process might sound great for buyers and sellers, but if the deals close faster with fewer parties involved, it may be easier for something to go wrong. Volatility
As with most investments, the value of cryptocurrency is and has been particularly volatile through its history. For example, Bitcoin values fell 25 percent over one weekend in December 2021. Through early June 2022, Bitcoin was down more than 50 percent from its 2021 highs. Similarly, properties traded through the blockchain may not have the same kind of protections that traditional real estate transactions do. Without a strong regulatory framework, these deals will remain risky. Bottom line
Using cryptocurrency to buy a home is a tantalizing idea, and blockchain-based transactions hold promise for the future. A number of companies are vying to create a role for cryptocurrency and blockchain in real estate. While it is technically possible to buy a home with cryptocurrency, for now, most real estate transactions are still done the old-fashioned way. SHARE: Jeff Ostrowski covers mortgages and the housing market. Before joining Bankrate in 2020, he wrote about real estate and the economy for the Palm Beach Post and the South Florida Business Journal. Michele Petry is a senior editor for Bankrate, leading the site’s real estate content. Related Articles