Cryptocurrencies can already be used as collateral by home buyers at some US lending companies, according to reports.
buy a house with Bitcoin As a guarantee it is possible, since the new cryptocurrency borrowing companies are entering the mortgage market that adds up to the bicoca of 2.6 billion US dollars, highlights a report from the media MarketWatch.
The media reports that an emerging company called Milo began, in March of this year, to offer 30-year mortgages backed by cryptocurrencies.
In such a short amount of time, the company is working with more than 700 potential borrowers on pre-approvals and has provided total loans between $5 million to $10 million, CEO Josip Rupena said in an interview.
Borrowers can use Bitcoin-Ether either stablecoins, What USD Coin, Gemini Dollar and Terra, as collateral for a loan, Rupena said.
That is not the only unconventional aspect of a crypto loan. Rupena says that Milo will award credits for up to 100% of the purchase price if someone has enough crypto. Someone who intends to buy a house for USD $500,000, for example, could pledge or promise USD $500,000 in Bitcoin as collateral for Milo, which would then provide the cash to close the deal with the seller.
Their 30-year mortgage rates range from 3.95% to 5.95% and the loan can be repaid at Milo in cryptocurrencies or dollars.
There are several companies
Explain Market Watch that Milo is not the only one doing that. Other startups offering cryptocurrency-backed mortgages include Figure Y Ledn, which say they have waiting lists for loans.
Figure it charges rates of 5.99% to 6.018% for 30-year fixed-rate mortgages and says borrowers can get up to $20 million in a loan. For its part, Ledn It says that the terms of your mortgage will be for two years, after which the loan can be renewed or reassessed. He adds that rates vary.
“If you leave like $1 million of Bitcoin or Ether, we’ll give you $1 million on loan”says Daniel Wallace, general manager of Figure Lending. “That means you’re not financing a loan out of pocket, there’s no down payment.”
The banks they rarely offer financing for 100% of the purchase price. They usually require a down payment of at least 20%. However, some banks and brokerage houses will accept securities as collateral, potentially for up to 100% of the purchase price for low-risk borrowers.
The medium highlights that loans with crypto can be much more simplified. Milo says you can close a loan in two to three weeks, no FICO credit check required not much documentation. The company says its main requirements are verification of identity and source of funds to comply with Know Your Customer and anti-money laundering rules.
How are these credits achieved?
Due to the price volatility of crypto, financing 100% of a home purchase in cryptocurrency might sound risky to any lender, but these crypto lenders say they can make it work. essentially using both the digital asset and the home equity as collateral for the loan.
“We take the house as collateral and the cryptocurrencies as collateral”, Wallace says. “If the market price of the crypto falls below a certain threshold, Figure may require the borrower to post more collateral or may automatically liquidate the crypto to make loan payments.” Add:
“We would have two assets on our books, $1 million in crypto and a house. We can automatically liquidate the Bitcoin to make mortgage payments, taxes, insurance, if necessary.”
Rupena says the collateral would have to drop 65% in value before the business would require more collateral or a loan modification.
“In a typical real estate transaction, you back the borrower and if they miss payments, their first line of defense is foreclosure,” He says. “With this, there is a liquid asset: crypto. It is volatile, but the levels we are asking for would support a significant drawdown.”
The demand for cryptocurrency-backed mortgages may be increasing. According to a recent survey of Redfin, About 12% of first-time homebuyers said they had sold some crypto for a down payment in Q4 2021. That was an increase from 8.8% in the third quarter of 2020 and 4.6% in the third quarter of 2019, it said. Redfin.
Borrowers may have various reasons for offering cryptocurrencies as collateral. They may be sitting on capital gains and should be taxed on a sale. They may be betting on price gains and don’t want to withdraw money to finance a mortgage. And your cryptocurrency may not be helpful in qualifying for a mortgage with a bank or other traditional lender.
Loans in general are currently under pressure now due to an increase in rates, recently reaching 5%. That’s how lCrypto loans are trying to make their way in a currently tough market. However, while they may be attractive to some borrowers, they don’t appear to offer better rates than conventional financing.
The outlet says that one of the reasons crypto loans have higher rates is that they cannot be sold to Fannie Mae either FreddieMac,
Fannie Mae and Freddie Mac which are the big companies that guarantee most mortgages made in the US Those government agencies have strict underwriting standards for “compliant” loans. They buy the vast majority of mortgages and then package them into mortgage-backed securities.
Still, these may be the initial rounds of a merger between crypto and traditional mortgage financing. Figure already made a deal with the private equity firm Apollo Global Managementselling the firm a package of mortgages “eNote” and transferring ownership of the notes through a blockchain.
“We believe there is a market for securitization of crypto loans”says Rupena, who started Milo to grant mortgages to non-US citizens living in the United States.
Furthermore, as has been said DailyBitcoin, There are many who do not seek loans, but buy homes with cryptocurrencies in cash and this phenomenon does not only occur in the United States. In countries such as Mexico, Chile, Argentina, Venezuela or Colombia, home purchases have already been made with crypto, in direct dealings with the real estate agency or the owner of the property.
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WARNING: This is an informative article. DiarioBitcoin is a means of communication, it does not promote, endorse or recommend any investment in particular. It is worth noting that investments in crypto assets are not regulated in some countries. May not be suitable for retail investors as the full amount invested could be lost. Check the laws of your country before investing.