Meet the software engineer who used crypto to buy his dream home
When Terrance Leonard began to invest seriously in the cryptocurrency space in 2019, his initial goal was to achieve financial independence.
The long-term plan was to invest enough in crypto that he could withdraw some of those investments, buy real estate assets, and rent them out to earn additional income. That way, he wouldn’t necessarily need a traditional job to make ends meet.
But then her ideal home hit the market. Leonard, who works as a software engineer in Washington, DC, already owned a townhouse. But he wanted a house with a bigger yard for his dog and a garage.
“I thought, ‘This is exactly what I want,’ Leonard said. “And I’m ready to pull the trigger right now.”
Leonard chose to use his cryptocurrency investments to cover a down payment and as proof of funds for the mortgage he took out to buy the house – he went for a mortgage, rather than buying the house outright. and simply because of the low interest rate environment.
The process, as he would find out, was not as straightforward as transferring his cryptocurrency holdings to the parties involved. “There was going back and forth between the lender and the title company to make sure it was OK,” Leonard said.
The winning crypto strategy: think about the dot-com bubble
About two years ago, Leonard moved all-in in crypto, taking a big bet on the relatively new asset class. “When I realized the potential of crypto – and I realized how well it worked for me in the beginning – I sold all of my stocks, my 401 (k), everything and everything transferred into crypto,” Leonard said.
Today, he attributes his ability to buy his “perfect” home to the success of the investment strategy he adopted. “Without investing in crypto, I couldn’t have bought this by the time it hit the market,” he said.
So what was this strategy? Take a long-term approach and target parts that are well positioned for longevity. It means no coins, like Dogecoin DOGEUSD,
Instead, Leonard likes to think that the crypto market is in a similar position to the dot-com boom of the 1990s, before the crisis. “I am looking for the Googles GOOGL,
the ORCL Oracles,
” he said.
“ Without investing in crypto there would have been no way I could have bought this by the time it hit the market. ”
He looks at the top 10 pieces and goes from there. Some of his investments were in BTCUSD bitcoin,
and Ethereum ETHUSD,
but most of his money was spent on buying Chainlink LINKUSD,
a cryptocurrency launched in 2017 that sends real-world data to blockchains.
Using cryptocurrency to get a mortgage isn’t foolproof
When Leonard bought his first home, the process was pretty standard. As a veteran, he was able to take advantage of the VA loan program and the process went “fairly seamlessly”.
Originally, he contacted his lender, Veterans United Home Loans, to see if he could refinance the loan for his first home to convert it to investment property, which would allow him to get a VA loan for his new home. House. In the end, it was not possible.
So when Leonard had to get another loan to buy the property that caught his eye, he figured he would use his crypto profits for his down payment and serious money deposit. This time around, the process was not as transparent.
“There were issues with the proof of funds,” Leonard said. “I just wanted to be able to say, ‘Here’s my wallet.'”
Homebuyers will typically need to convert crypto assets into cash to use them for the down payment on a home.
He couldn’t just transfer the crypto investments or show his account on Coinbase to satisfy the lender and his title company. Instead, he needed to cash in a bank account, as someone might with money earned on the stock market.
The process could have been easier if Leonard had researched a home from a real estate broker who specializes in transactions involving cryptocurrency. Some brokerage houses have started listing properties that the seller only wants to be paid for in cryptocurrency, sometimes specifying a specific investment vehicle. Unfortunately for Leonard, these brokerages didn’t have the types of properties he wanted, and he wasn’t necessarily inclined to make an all-cash (or rather, fully crypto) deal.
“We had the lowest interest rates for a very long time so I wasn’t going to pass up this opportunity,” he said, adding that he was more likely to see a better return on his crypto investments. , even after taxes, than him. would if he invested all his money in the house.
For lenders, the paper trail is key
In the mortgage and real estate industries, using cryptocurrency investments to buy homes is still a new concept. And lenders are always thinking about how to treat these assets.
Crypto is such a new concept that even determining how many loans have involved homebuyers with crypto investments is a challenge, said Chris Birk, director of education at Veterans United. “The mortgage creation software doesn’t have fields to track something like this,” Birk said.
Right now, lenders are blindly stealing with these potential borrowers, as regulators and other mortgage entities are only just beginning to release guidelines on how to assess the strength of crypto assets.
Fannie Mae FNMA,
one of two government-sponsored companies that securitizes the majority of mortgages nationwide, requires proceeds from bitcoin and other digital currencies to be converted to US currency in order for them to be eligible assets when taking out a loan. Fannie also needs documentation that the digital currency belonged to the borrower.
However, Freddie Mac FMCC,
does not view cryptocurrency as an eligible source of funding. And other agencies have yet to provide specific advice. The Department of Veterans Affairs has not put in place any regulations that specifically refer to cryptocurrency, a spokesperson for the agency said. But the VA requires verification of deposits.
Lenders can request a 30-60 day transaction history for crypto accounts.
Lenders will typically request a paper trail, showing a 30-60 day transaction history for the crypto account. But, as Birk noted in a recent blog post, cryptocurrency accounts don’t always provide monthly statements like a bank would. And for now, lenders will expect borrowers to cash out their crypto investments early in the process.
“You can’t pay your closing costs with a Van Gogh – it’s the same with your bitcoin,” Birk said. “It will have to be converted, it will have to be seasons and there will be documentation to satisfy the lender.”
In part, this strict approach reflects the responsibility of mortgage companies to report potential criminal behavior, including money laundering. Underwriters need to be able to see potential red flags, which is not so easy with crypto wallets per se.
Despite the hassle he faced in purchasing his new home, Leonard is not deterred from investing in crypto. Right now, he’s still making enough of his remaining crypto investments to cover the mortgage payments on his old house.
“I’m in no rush to sell,” Leonard said. “I want to make sure I’m playing the right financial game.”