In recent years, cryptocurrencies have been integrated into traditional financial instruments such as ATMs (ATMs), rechargeable debit cards, point-of-sale devices, and direct payments for all types of goods and services. Digital assets have also been added to the offerings of retirement accounts issued by financial giants like Fidelity. Recently, cryptocurrencies can be capitalized more heavily to pay down a mortgage or secure a traditional home loan with bitcoin as collateral.
Traditional crypto home loans
Today, banks, at least in the United States, require a minimum 20% down payment when an individual or couple wishes to buy a home on a traditional loan. Typically, people use cash as collateral or a down payment, but Americans can also use things like office equipment, inventory, bills, general liens, and even other forms of real estate to secure a traditional mortgage.
On April 8, 2022, the median home price in the United States was $392,000, meaning a buyer would need $78,400 in collateral to obtain a traditional bank loan. Although crypto assets can be used to fund debit cards and pay for items through point-of-sale commerce, few companies allow people to use digital currencies for a crypto-backed loan.
However, there are currently some companies offering loans using crypto assets as collateral or planning to do so in the near future. Additionally, some companies that wanted to offer crypto loans dropped the idea soon after.
For example, the second-largest mortgage lender in the United States, United Wholesale Mortgage, announced it would accept Bitcoin (BTC) for mortgages in late August 2021. However, a few months later, United Wholesale Mortgage announced that the company had decided not to offer crypto services.
The company’s CEO, Mat Ishbia, told CNBC in October 2021 that the lender didn’t think it was worth it. “Due to the current combination of additional costs and regulatory uncertainty in the crypto space, we have concluded that we will not go beyond a pilot at this point,” Ishbia told CNBC’s MacKenzie Sigalos.
Crypto-backed home loans from Abra and Milo
One financial services company that has just announced crypto home loans is cryptocurrency firm Abra. The company, founded in 2014 by former Goldman Sachs fixed income analyst Bill Barhydt, has been providing digital asset trading services and a cryptocurrency portfolio for more than seven years.
On April 28, 2022, Abra announced its partnership with Propy and home buyers can obtain a home loan with crypto as collateral through the Abra Borrow platform. The Abra loan app has different interest rates depending on the amount of crypto collateral added, ranging from 0% to 9.95%.
“While investing in digital assets has exploded, most investors are unable to use their cryptocurrency holdings to directly fund that most important purchase of their lives, a home,” said Abra CEO Bill Barhydt during the announcement . “Our partnership with Propy solves this problem and is an important step in bridging the gap between crypto and real estate,” added the Abra executive.
Alongside Abra, a company called Milo offers crypto mortgages for people interested in buying real estate. Milo is a Florida-based startup that raised $17 million in Series A funding on March 9, 2022. California-based venture capital firm M13 led the funding round, and QED Investors and Metaprop participated.
Milo offers 30-year loans to borrowers who want to raise up to $5 million. Milo accepts stablecoins, Bitcoin (BTC), Ethereum (ETH) and interest rates range from 5.95% to 6.95%, with loans having a two to three week close time. When Milo raised $17 million last March, Milo CEO Josip Rupena said the company’s efforts are aimed at enabling crypto participants.
“That [funding] The funding round is a validation of Milo’s vision to empower global and crypto consumers and provide an opportunity to connect the digital world with real real estate values,” Rupena said at the time. “This is a multi-billion dollar opportunity and we are proud to be pioneering for consumers with unconventional wealth in the United States.”
Ledn and Figure Technologies plan to offer crypto mortgage products
Crypto lender and savings platform Ledn announced in December 2021 that it was planning “the upcoming launch of a Bitcoin-backed mortgage product.” At the same time, the company said it raised $70 million from a handful of well-known investors.
Ledn was founded in 2018 and the company has raised a total of $103.9 million to date. As of this writing, Ledn’s bitcoin-backed mortgage is not yet available, but people can join the Ledn mortgage product waiting list.
“By combining the potential for appreciation of Bitcoin with the price stability of real estate, this unique loan offers a balanced mix of wealth-building guarantees,” according to Ledn’s mortgage website. “With the bitcoin mortgage, you can use your assets to buy a new property or finance your existing home. Get a loan equal to your Bitcoin holdings without selling Satoshi.
Figure Technologies also plans to provide a crypto mortgage, and people can join a waiting list to gain access to Figure’s next product. Figure co-founder Mike Cagney said in late March that the company was rolling out the mortgage program.
“Figure is launching a crypto-backed mortgage in early April,” Cagney said at the time. “100% LTV – You invest $5 million in BTC or ETH, we mortgage you $5 million. No painful process, no payout, any amount up to $20 million for a 30 year mortgage. You can make payments using your crypto collateral. And we don’t charge your cryptos again.
Although there aren’t many crypto mortgage products today, the trend is starting to get a bit bigger in 2022. If the trend continues, such as the integration of crypto into ATMs, debit cards, and the myriad of traditional financial vehicles, the concept of buying a home with Bitcoin is likely to become a mainstay of society.
What do you think of the concept of crypto mortgage products? Let us know what you think about this topic in the comment section below.
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