Buy a Home Using Crypto-Backed Mortgages with Bitcoin or USDC

Coinbase, the largest U.S.-based cryptocurrency exchange, has partnered with Better Home and Finance (Better.com), a mortgage lender, to launch cryptocurrency-backed mortgages to millions of Americans.

The mortgage is structured as a conforming loan that meets Fannie Mae guidelines, ensuring it carries the same legal protections and interest rate standards as traditional home loans.

Borrowers can pledge Bitcoin (BTC) or USDC as collateral for a separate loan to fund their down payment, rather than selling their assets. It allows users to keep their assets intact and avoid creating a taxable event by spending them. In the case of USDC, users can keep earning rewards.

Better founder Vishal Garg said in an interview that over 41% of American families fail to buy a home because they don’t have enough funds for the down payment, even though they have money elsewhere in savings.

In America, average homebuyers are financially burdened by increasing interest rates while house prices remain the same. For example, if a person is looking forward to buying a $40,000 property, they might struggle to find the $40,000 cash down payment and face a swamp of legal and tax requirements when trying to sell assets to make the amount.

An existing crypto holder on Coinbase can avoid all the procedures required for collateral loans and simplify transferring their digital assets from the exchange to a custody wallet with Better while retaining ownership rights.

Garg also added, “If Better had previously been accepting crypto as downpayment collateral, “we would have funded maybe 40 billion more of consumer demand over the past few years.”

Numerous Crypto-Backed Mortgages Are Arriving

Several advances in crypto-backed mortgages have been made, including a few that use Coinbase as custodian. The key emphasis is on wealth management and relatively high-end purchases, rather than catering to people with normal incomes and standard financial needs.

In February 2023, Better allowed Amazon (AMZN) employees to pledge their stock as collateral for a loan for a down payment on a house purchase, at a higher interest rate.

America’s largest bank, JPMorgan Chase, allows a selected group of lenders to use Bitcoin (BTC) and Ethereum (ETH) as loan collateral through its Onyx blockchain platform.

BNY Mellon offers similar services, simultaneously providing crypto custody and loans. On the other hand, Wells Fargo and Bank of America take spot Bitcoin ETF shares as collateral.

The Swiss cryptocurrency bank, Sygnum Bank, provides credit solutions with digital assets or their hash rate as collateral.

A spokesman for Coinbase said that the rates for crypto-backed mortgages will be higher than a standard 30-year mortgage by between half a percentage point and 1.5 percentage points, depending on the profile of the individual consumer.

Benefits of a token-backed mortgage

There won’t be margin calls or top-ups. If BTC drops in value, the mortgage terms remain unchanged, and no additional collateral is required.
For users interested in pledging Bitcoin or USDC as collateral instead of a cash down payment. Their collateral is only at risk of liquidation in the event of a 60-day payment delinquency.
For users interested in pledging USDC, unlike a conforming cash down payment, pledged USDC earns rewards that can help offset mortgage payments.
Moreover, due to Coinbase Custody’s unique architecture, consumers will be able to pledge certain quantities and types of tokens, rather than having to pledge the entire value of their account.

All Coinbase One members who procure a token-backed or regular mortgage product through Better will be eligible for a rebate worth 1% of the mortgage value, capped at $10,000 to cover closing costs and fees.

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