Everything You Wanted to know About Crypto Down Payments
Cryptocurrency used to be a “forbidden door” when it came to your down payment. That’s quickly changing. Let’s look at the latest for using cryptocurrency towards the down payment on your next home purchase.
What is crypto currency?
Unless you’ve been living under a rock, you’ve probably heard the term cryptocurrency. But do you truly understand what it is and how it works?
Cryptocurrency is a digital currency. It doesn’t exist in physical form as bills and coins like regular money. Instead, it only exists on the Blockchain. The most well-known example of cryptocurrency is Bitcoin, but there are lots of other types out there. The next point is key, so it’s worth reading twice.
Cryptocurrency is decentralized. Unlike regular money, it doesn’t use a central authority like a bank or the government to manage it. Instead of one party having all the authority, the authority of cryptocurrency rests in the hands of its user. This has helped cryptocurrency rise in popularity to what it is today, as there’s a greater level of trust from its users.
What is a down payment and what do lenders want to see?
The down payment is a percentage of the purchase price that you pay out of pocket. A down payment is usually required when making a major purchase, such as a home or car. In this article we’ll talk about the former.
In Canada the minimum down payment is 5% of a home’s purchase price. Lenders typically want to see a 90-day history of any funds being used towards down payment. The reason for this is twofold.
The lender wants to see how you accumulated the funds. The lender wants to make sure that you didn’t borrow the funds. Furthermore, it’s required to do so by the government due to anti-money laundering legislation. The lender is required to make sure you aren’t using the purchase of a property to launder money.
Can I use cryptocurrency towards my down payment?
We come back to the key question of the article. Can we use crypto currency towards our down payment? The answer is that it depends on the lender.
If we’re talking about well qualified borrowers, the answer is most likely no. That’s because the banks and other prime lenders are highly regulated and have stringent reporting requirements to the government. Since cryptocurrency is unregulated, it doesn’t yet meet those requirements. Therefore, if you have cryptocurrency, while you may be able to use it towards other purchases, using it towards the down payment of a home with a prime lender likely isn’t allowed.
However, I have some good news. While it’s going to take prime lenders and the government some time to get into the 21st century, some alternative and private lenders are coming on board and accepting cryptocurrencies. Those lenders can be more flexible because they aren’t as highly regulated as prime lenders and don’t have as strict reporting requirements.
Finding out the lenders who accept crypto
The bottom line is it may be possible to use your cryptocurrency towards your down payment. The list of lenders who accept it is ever evolving.
If you’d like to know a lender who may be a good fit, reach out to us today. We’d be happy to assist you find a lender who is a good fit.
