How Can I Use Cryptocurrency To Qualify For A Loan?

Just a few years ago, cryptocurrencies such as Bitcoin, Ethereum, and Dogecoin were niche interests. But today they are definitely moving into the mainstream. A recent survey from HSB and Zogby Analytics found that more than a third of small-and medium-sized businesses now accept cryptocurrency as payment – right along with Visa, MasterCard, and American Express.

That means there are already many entrepreneurs, small-business owners, and early crypto investors and adapters who own crypto assets in their own portfolios. And lenders are increasingly taking notice. As specialists in this area of lending, we at DAK Mortgage know who they are.

We work regularly with lenders who understand crypto, and who are eager to work with crypto enthusiasts and non-traditional homebuyers and real estate investors like you.

Using crypto to get a mortgage

You can use cryptocurrency to qualify to purchase or refinance in three ways:

Towards satisfying the lender’s reserve requirements
Paying down payments and closing costs
Satisfying the lender’s income requirements under an asset utilization program

You can potentially use crypto to help you get a mortgage on any type of property, including your own personal owner-occupied residence (whether primary residence or second home), investment properties, or commercial property. You can also use crypto whether you’re doing an outright purchase or refinancing an existing mortgage.

Here’s a more in-depth discussion of each of the three ways you can use crypto to get a mortgage:

First way: Satisfy the lender’s reserve requirements

Just having the down payment and enough income to cover loan payments isn’t enough. Most lenders want to know that you aren’t stretching yourself too thin when it comes to making the payments. They want to see that even after you close on the property, that you have ample reserves available to handle any disruptions to your income.

Typically, lenders will divide your available assets by your monthly mortgage payment. The result is the number of months’ reserves. For example, if your projected monthly costs of ownership (including your monthly payment, taxes, insurance, HOA, or condo association fees) total $5,000, and you can show that even after you close on the property, you will still have $25,000 in cash or cash-equivalent assets on hand available as reserves in case your income falters, the lender will calculate you have 5 months ($25,000 / $5,000) of reserves.

Today, a few innovative lenders are beginning to recognize crypto assets as a suitable form of reserves. If you don’t want to liquidate your crypto assets, you need a specialized lender that understands how crypto works, and is willing to take on the volatility that is still inherent in most major cryptocurrencies.

Details vary by lender, but some lenders are willing to credit up to 90% of your crypto assets toward their reserve requirement.

To qualify, you must have your crypto stored with a reputable U.S. crypto exchange. The valuation must be determined by your U.S. exchange within 30 days of the loan closing.

If you prefer, you can also sell your crypto, convert it to cash, and deposit it in an established bank account. In that case, the lender will apply 100% of your balance toward their reserve requirement.

Some lenders have ‘seasoning’ requirements on reserves: That is, they will want to see proof that your crypto or other reserves have been in your account for three to six months. Other lenders, however, have no seasoning requirements at all.

Converting crypto to cash will increase the amount the lender will credit you toward their reserve requirements – thereby possibly helping you qualify for a bigger monthly loan payment. However, you should consider the capital gains tax implications of selling your crypto, as well as the possible opportunity cost of holding cash or other low-risk, low-return assets as reserves instead of crypto.

Second way: Pay for down payment and closing costs

Few sellers and escrow or title companies are currently accepting crypto directly. For now, expect to liquidate sufficient crypto to cover your down payment and closing costs, unless you can cover these with cash on hand or other assets.

Using crypto for the closing costs and down payment (if a purchase transaction) is a bit easier than reserves, as no math is required. Instead, you simply liquidate your crypto and deposit it into an established bank account prior to the closing date.

Third way: Satisfy the lender’s income requirements under an asset utilization program

This is where the asset utilization program comes into play: In an asset utilization program, lenders recognize your crypto assets as a source of future income available for you to cover your mortgage payments. Typically, they’ll calculate it by taking your total creditable personal and business assets – including crypto – and dividing it by a certain number of months.
The result is the estimated monthly income that your assets are likely to generate.

These programs – also called asset depletion programs – have been around for a long time. With these programs, mortgage lenders don’t just look at your verifiable income. Instead, they take into account all the assets you own that may be available to support your mortgage payment.

Asset utilization programs may be a great match for someone who has a good deal of wealth, but who doesn’t have a regular, verifiable income. They’re a frequent solution for entrepreneurs, investors, commissioned real estate salespeople, day traders, people with trust funds, retirees, foreign nationals, the self-employed, and anyone else with significant assets but an irregular or difficult-to-verify income.

The mortgage company knows that the borrower can liquidate the assets as needed to make mortgage payments or pay off the balance of the loan outright.

This allows non-traditional borrowers access to much bigger loan amounts than they’d be able to qualify for under conventional (Fannie Mae, Freddie Mac, FHA, or VA) rules.

A few niche lenders are already adding crypto to the list of assets they will consider as part of an asset utilization program.

Eligible assets

Assets typically considered for an asset utilization program include:

Liquid cash and cash-like equivalents
Checking and savings account balances
Cash value of insurance policies
Money markets
CDs

Lenders typically credit 100% of liquid cash and cash equivalents toward your ability to get a mortgage.

Investment accounts
Stocks
Bonds
Mutual funds
Brokerage accounts

Lenders typically credit up to 90% of the vested value of these assets towards their income calculation.

Example: You have cash or cash equivalents worth a total of $500,000. Interest is negligible. Your lender calculates your projected income from these assets over 60 months, or $8,333.33 per month. E.g.: Even if your assets don’t earn a dime of interest, and you park them in a passbook savings account where they don’t appreciate in value at all, the lender knows that you can still liquidate $8,333.33 every month for up to 60 months, if need be, to make your living expenses and make your mortgage payments.

If you have $100,000 in cash, and $400,000 in investment accounts, in stocks, bonds, mutual funds, or brokerage accounts, a lender may credit you with $460,000 – the full 100% of your assets held in cash or cash equivalents, plus $360,000, which is 90% of the $400,000 you hold in your investment accounts.

Note: Not all lenders consider crypto as part of their asset utilization programs at this point. It’s still a very specialized market, and many mortgage brokers who don’t focus on niche lending scenarios don’t even know about them.

With a crypto asset utilization program, you can combine part of the value of your crypto portfolio with your other assets to qualify for a bigger mortgage. Or you can rely solely on your crypto assets to support the income you claim on your mortgage application.

How crypto works in an asset utilization program

Most lenders restrict their asset utilization programs to crediting only the most established cryptocurrencies, such as Bitcoin, Ethereum, Binance, and Dogecoin. Each lender is different, but because of the volatility in the crypto space, most lenders will only credit 40% to 50% of your crypto balance under asset utilization.

However, if you otherwise qualify, our lending partnerswill credit up to 90% of your crypto portfolio’s value toward your application. This is an outstanding offer – much better than the current industry standard.

Under our program, your monthly income calculated from your crypto assets under our asset utilization program will be 90% of your current balance, divided by 60.

Other requirements: You must hold your crypto in a reputable U.S.-based crypto exchange that issues statements in your own name. Examples include Binance, Coinbase, or Kraken.

Again, the valuation must be determined by the reputable exchange within 30 days of the date on the note.

Seasoning Requirement: The crypto assets must be in your exchange account for at least 60 days, and in some cases, 120 days, to be considered.

Crypto asset utilization for investment properties

You can take advantage of crypto asset utilization programs for investment properties as well as owner-occupied properties (e.g., primary residences and second homes).

You can generally use an asset utilization program for residential investment properties, including:

Single-family residences
2-4 units (duplexes, triplexes, quadplexes)
Condominiums (warrantable)
Townhomes
Planned urban developments (PUDs)

There are also creative loan programs that cover non-traditional property types, including:

Non-warrantable condominiums
Co-ops
Short-term rental properties (e.g., condotels or condo-hotels, Airbnb, Vrbo, etc.).

Maximum loan-to-value

It’s possible to leverage your crypto assets to refinance a home, using an asset utilization program, just as it’s possible to buy a home outright. You can even do a cash out refinance, if you otherwise qualify.

In today’s market, the maximum loan-to-value (LTVs) are 75% to 80% for outright purchases and refinances. That is, you can expect a down payment of 20% to 25%.

For cash-out refinance transactions, the maximum loan-to-value ratio will be slightly lower: 70% to 75%. That is, you can borrow up to 70% to 75% of the value of the property using an asset utilization program.
If you have a substantial crypto portfolio and you’ve had trouble getting a mortgage in the past, contact us today. We may have a lender who is eager to work with a borrower like you.

Maximum loan amounts

We’ve seen loan amounts as high as $10 million or more. If you have the assets to support it, and the property is worth the loan amount, there’s essentially no limit.

Other factors

You can, of course, combine your existing verifiable income with the income the lender projects under the asset utilization program.

Lenders will also look at your debt-to-income ratio, as well. Typically, you’ll need to have a back-end DTI of 50% to 55% or lower to get approved.

Advantages of asset utilization programs

Applying under an asset utilization program has several advantages:

First, it’s an easy, fast, streamlined application process. You don’t need to submit tax returns, tax transcripts, W-2s, 1099s, profit and loss statements, VOEs, or other employment documents. If the loan is based on your assets, you don’t need to worry about verifying your income. Just show statements verifying the value of your assets.

Second, you don’t need to liquidate appreciated assets up front, exposing yourself to a capital gains tax hit. You just leave these assets to (hopefully!) appreciate, and liquidate only when you want to, or only as needed to cover your mortgage payment.

Third, you still get the benefit of any future appreciation in your crypto assets – as well as any appreciation in the value of the property. They both remain in your portfolio.

Fourth, once the loan is processed, the lender takes on the risk of your assets declining in value. If your crypto assets decline, there’s no ‘margin call.’ You’ll still need to make your mortgage payments, but you won’t have to put up any additional capital if your AUP assets decline.

Non-standard, creative mortgage solutions

Asset Utilization Programs, including crypto programs, are just one of many tools available for non-standard borrowers, or borrowers who need a little creativity when it comes to underwriting a mortgage. At DAK Mortgage, we consider ourselves problem solvers. Furthermore, we know the lenders who work with crypto holders and other non-traditional borrowers. Many of them have been our long-time partners, and together, we’ve helped many people just like you qualify for a competitive, affordable mortgage.

If you are delaying purchasing or refinancing because you think you can’t qualify for a mortgage, or if you’ve been turned down elsewhere, we want to hear from you.