Crypto-backed mortgages are gaining traction as a novel solution to the growing challenges of homeownership affordability in the U. S.. A recent collaboration between Coinbase and Better Home & Finance Holding Company aims to make homeownership more accessible by allowing borrowers to use their Bitcoin (BTC) or USD Coin (USDC) as collateral for a down payment. This innovative approach addresses the difficulties many face in meeting traditional lending requirements, which often prioritize income history, credit scores, and liquid savings.
Traditional lending models often require potential homeowners to liquidate their crypto assets, triggering capital gains taxes and foregoing potential future gains. Crypto-backed mortgages offer an alternative by allowing borrowers to leverage their digital assets without selling them. Coinbase has stated that prospective homeowners can soon use Bitcoin or USDC in their Coinbase accounts to fund their cash down payments. For instance, borrowers can pledge $250,000 in Bitcoin to unlock a $100,000 down payment loan, or $125,000 in USDC for the same result.
This collaboration with Better allows Coinbase One members to receive a rebate worth 1% of the mortgage value, capped at $10,000, to cover closing costs and fees. Better will originate and service these loans, which also benefit from Fannie Mae backing, similar to other conforming mortgages.
While crypto-backed mortgages present an exciting opportunity, borrowers should consider the volatility of cryptocurrency markets and understand the terms and conditions of these loans. This includes understanding collateral requirements and potential liquidation policies in the event of default or significant drops in collateral value.
