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Can I Use Crypto for a VA Loan Down Payment?

VA Loan Down Payment with Cryptocurrency as Down Payment

There are two basic questions you’re likely to have when reading the headline for this article. The first is naturally, “Why would I want to make a down payment on a VA mortgage?” It’s true that VA loans typically do not require a down payment. But there are good reasons to make a down payment anyway, and we’ll get to that below.

The second question some are likely to ask is something along the lines of, “Why using cryptocurrency for a down payment is an issue at all?”

The short answer to that question is that at press time when interest in Bitcoin, Ethereum, and other virtual currency is at an all-time high, many investors wonder about using non-traditional, decentralized finance to execute more traditional investments and transactions like VA mortgages.

But what can you do with Bitcoin where a mortgage is concerned? We’ll address that below, but first:

Why Make A Down Payment On a VA Mortgage?

Some might laugh at the idea of putting money down on a mortgage that has no down payment requirement. But those who make down payments of a certain size on a VA mortgage get a benefit from doing so–a reduction in the amount of the VA loan funding fee. You can get a lower fee by putting five percent or up to ten percent down.

The amount of the VA loan funding fee you are charged (which is a percentage of the loan) depends on the down payment. Five percent or below and your VA loan funding fee is 2.3% for first-time use.

Above five percent but below 10% and your VA loan funding fee is 1.65%, and 10% or greater your VA loan funding fee is 1.4% for first-time use. VA loan funding fees may be higher for subsequent use.

As you can see from the numbers above, it makes sense to make a down payment if your funding fee is discounted as a result. 1.65% is a bargain compared to 2.3%

 

>> Interested in a zero down payment possible home loan with no PMI?  For a no-obligation, free consultation regarding your VA Loan eligibility, please go here.

 

Using Cryptocurrency To Make A Down Payment?

Home loans in general have strict rules about the sourcing of down payment funds. The lender has to see a paper trail documenting the funds you use for your down payment showing that it did not come from sources like a payday loan, a pink slip loan, or credit card cash advances. Money that cannot be verified by the lender cannot be used for the down payment.

By its very nature, cryptocurrency is not verifiable by your lender. The anonymous nature of crypto is part of the problem, and decentralized finance doesn’t permit the lender to do her due diligence in terms of sourcing the money.

And then there is the mechanism for delivering crypto to the lender. You may find that traditional financial institutions are not equipped to receive crypto as payment for anything unless it is specifically related to buying, selling, or trading Bitcoin, Ethereum, etc. Some traditional lenders have started to embrace crypto, but where mortgages are concerned, you may find that Bitcoin isn’t an option for your down payment. At least not directly.

Cryptocurrency Is Not Cash

That sounds wrong to some. Bitcoin, Dogecoin, Ethereum, and others can be used to buy and sell, how is it NOT considered cash?

That is a question for the United States federal government, which does not classify crypto as legal tender but rather as property. It is taxed by the IRS as property. This concept is so important we will say it twice–cryptocurrency is not a form of legal tender in the eyes of the U.S. government.

Therefore, cryptocurrency is not available to the borrower to use as a down payment.

Home loans have specific procedures and processes for payment. You cannot bring a wheelbarrow full of cash to your closing day appointment and expect to pay your closing costs with it, your loan officer will tell you what form of payment is acceptable for cash to close. But crypto will not be one of those options.

The Alternative To Using Crypto For A Down Payment

Technically, a borrower should be able to convert cryptocurrency into cash and use the cash to make the down payment. But there’s just one issue–the sourcing requirements your lender has for the down payment make it necessary to use caution when taking this approach. The best thing to do is to confer with your loan officer about this option.

If your lender allows you to convert crypto to cash for down payments and/or closing costs they may require you to “season” the money in an account for a set amount of time before it can be used. This will depend greatly on lender standards and your experience may vary depending on the lender and other variables. State law and changes to federal law may also affect this option.

The Bottom Line

Making a down payment on a VA mortgage is a good idea; using crypto to do it is not really an option. Talk to your loan officer about options for converting cryptocurrency to cash and what the requirements might be in order to pay closing costs or make a down payment using those funds.

 

>> Interested in a zero down payment possible home loan with no PMI?  For a no-obligation, free consultation regarding your VA Loan eligibility, please go here.

 

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