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An increasing number of first-time homebuyers are using proceeds from selling cryptocurrency to fund their down payments. According to a late 2021 survey, 11.6% of first-time buyers reported that cryptocurrency sales helped them save for a down payment, a significant increase from 4.6% in 2019. This trend is largely driven by millennials, who now represent over half of new mortgages and have a higher rate of cryptocurrency ownership than other generations. While this strategy has enabled some buyers to enter the housing market, it introduces unique financial considerations.
The use of cryptocurrency for down payments is a growing phenomenon. A survey commissioned by Redfin and conducted by research firm Lucid in December 2021 asked 1,500 U.S. residents about their home-buying plans. Among the 215 first-time homebuyers surveyed, selling crypto was the fourth most common method for accumulating a down payment. The most common response was saving directly from paychecks (52%), followed by a cash gift from family (12%) and pulling money from a retirement fund early (10%). The 11.6% figure for cryptocurrency highlights its emergence as a non-traditional funding source, particularly as rising home prices necessitate larger down payments.
Using cryptocurrency for a down payment can be a viable strategy, but it requires careful planning. The primary benefit is the potential for significant asset appreciation. For example, Bitcoin reached a record high of nearly $69,000 in November 2021. For buyers who invested early, selling at a peak can generate substantial funds quickly. As Redfin's Chief Economist Daryl Fairweather noted, this can act as a "lottery ticket" for those without generational wealth.
However, the risks are substantial. Cryptocurrency values are extremely volatile. The same assets used for a down payment can rapidly lose value, which could jeopardize your home purchase during the escrow period. Furthermore, you must document the source of these funds meticulously. Mortgage lenders will require a paper trail showing the purchase and sale of the cryptocurrency to comply with anti-money laundering regulations. Based on our experience assessment, sudden large deposits into your bank account without a clear origin can delay or even derail your mortgage approval.
If you plan to use cryptocurrency, proactive steps are essential for a smooth transaction. First, sell your cryptocurrency and transfer the funds to your bank account well in advance of making an offer on a home. This allows the funds to "season" in your account, typically for at least 60 days, making them easier for your lender to verify. Second, keep detailed records of every transaction, including:
You must also be prepared for potential tax implications. In the U.S., selling cryptocurrency is a taxable event, and capital gains tax will apply to any profit. It is crucial to consult with a tax professional to understand your liability and avoid surprises.
Successfully using cryptocurrency for a down payment hinges on advanced planning, understanding volatility, and maintaining thorough documentation to satisfy lender requirements.
