If you’re a fan of crypto, perhaps you’ve been thinking about the various ways to incorporate it into your financial life. Perhaps you’ve seen headlines claiming crypto mortgages are on the rise as the new way to buy some homes.
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However, before you set out to grab your next house with crypto, there are some precautions to keep in mind. Here’s what financial experts told GOBankingRates about certain methods and their risks when using crypto to purchase a home.
Convert-To-Cash Method
Andrew Lokenauth, a money expert from Be Fluent in Finance, said the most straightforward method he’s used with clients is converting crypto to cash first.
“I just helped a client last March sell $600,000 in bitcoin for their dream house in the suburbs,” he said. “The thing is, most sellers still want good old-fashioned dollars, and this approach causes the least headaches with lenders.”
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Crypto-Backed Loans
“Let me tell you about a client who tried using a crypto-backed loan,” Lokenauth said. “The market tanked right before closing, and they got hit with a massive margin call — lost about $75,000 in collateral. Not fun explaining that one to their partner.”
Smart-Contract Escrows
You may also want to take a look at escrow and mortgage opportunities that use crypto in the purchase of a home, but may offer some risk protection.
“It’s possible to leverage your crypto for real estate purchases by using smart-contract escrows or stablecoin-pegged mortgages, which automate payments and reduce counterparty risk,” according to Chad Willardson, founder and president of Pacific Capital and City Treasurer of Corona, California. “Tokenized property platforms allow fractional ownership, softening volatility by spreading exposure across multiple investors.”
However, per Willardson, crypto’s price swings remain a major risk — buyers should hedge with stablecoins or convert to fiat at closing.
Blended Financing
According to Willardson, regulatory ambiguity can slow or derail transactions, so work with title companies experienced in digital assets.
“As an alternative, consider blended financing: part traditional mortgage and part crypto loan to balance innovation with stability,” Willardson said.
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This article originally appeared on GOBankingRates.com: Should You Use Crypto To Purchase a Home? 4 Methods and Their Risks
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
