How crypto investments can play a role in home purchases

An increasing number of veterans are looking into how cryptocurrency can play a role in their home purchase amid a time when the digital currency is surging in popularity and volatility, according to Chris Birk, vice president of Mortgage Insight. 

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Birk, who is also the director of Education at Veterans United Home Loans, told FOX Business that their loan teams are seeing increased interest from veterans in exploring the use of the digital currency to cover a down payment or closing costs for a home.

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With VA loans, veterans have the ability to purchase a home without a down payment which, according to Birk, 8 in 10 VA homebuyers nationally do every year. However, veterans can choose to make a down payment with a VA loan and some of them are turning to their crypto investments to do so, Birk said. 

"Making a down payment means veterans are borrowing less and establishing equity from day one," Birk said. "Putting money down can also lower the VA Funding Fee for borrowers who pay it." 

The VA funding fee is a one-time payment to the Department of Veterans Affairs that supports the VA loan program. 

One individual who used this tactic was Terrance Leonard, a recent homebuyer in Washington D.C. 

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"When my crypto investments were doing very well, I was like, ‘Ok, I have a little bit of money now that I can just take out and cover the down payment,’" Leonard said in a statement to FOX Business. "I had a few particular coins that were doing very well that I ended up selling, and it's just like you sell a stock." 

However, "Instead of selling stocks, I'm just selling crypto to cover the down payment or closings costs for my purchase," he added. 

Like other investment opportunities, cryptocurrency can potentially be used to make large purchases in the future, according to Birk. He cautioned, though, that it's not as simple as transferring the digital currency to a mortgage lender.  

First, the cryptocurrency, which is a digital asset that is intangible, needs to be converted into U.S. dollars.

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To do so, you need a paper trail of the investment. 

"It's really about documentation and having a paper trail as you would with any other asset source," Birk said. 

The issue is that you're not getting bank statements every month but "you're going to need that kind of documentation," according to Birk. 

Instead, "you're talking like screenshots, screengrabs that make it clear that this is the cryptocurrency that was in your account and it's leaving your account, and now here it is in a legitimate banking account that you have," he said. 

Verifying assets is a key part of the underwriting process, Birk explained in an April 7 blog post. However, "every buyer’s situation is different, and what underwriters and lenders need to see can vary by lender and other factors," he wrote. 

It is recommended that veterans talk with their loan teams early on in the process although Birk finds it equally as important to speak with a tax professional. 

"There are some potential tax implications if you’re converting crypto into dollars, especially if you realized a gain," Birk wrote. "The IRS considers cryptocurrency to be property, not currency."