This software engineer used cryptocurrencies to buy his dream home, but the process was not entirely straightforward.

When Terrance Leonard started seriously investing in the crypto space in 2019, his original goal was to achieve financial independence. The long-term plan was to invest enough in crypto to be able to cash out some of those investments and buy real estate assets. . and rent them for additional income. That way, you wouldn’t necessarily need a traditional job to make ends meet.

But then his dream home came on the market. Leonard, who works as a software engineer in Washington, DC, already owned a townhouse. But he wanted a house with a bigger yard for his dog to play with and a garage. “I thought, ‘This is exactly what I want,’” Leonard said. “And I’m ready to pull the trigger right now.” Leonard chose to use his cryptocurrency investments to cover a down payment and as proof of funds for the mortgage he obtained to buy the house; opted for a mortgage, rather than buying the house outright, due to the low interest rate environment. The process, as you would discover, was not as simple as transferring your cryptocurrency holdings to the relevant parties. “There was an exchange between the lender and the title company to make sure everything was okay,” Leonard said. The Winning Crypto Strategy: Think Dot-Com Bubble About two years ago, Leonard bet on cryptocurrencies. big bet on the relatively new asset class. “When I realized the potential of cryptocurrencies, and realized how well I was doing in the beginning, I sold all my shares, my 401 (k), everything and changed everything to crypto,” said Leonard. Today, he attributes his ability to buy his “perfect” home to the success of the investment strategy he adopted. “Without investing in crypto, there would have been no way I could have bought this the moment it went on the market,” he said. So what was that strategy? Take a long-term approach and aim for coins that are well-positioned for longevity. That means there are no meme coins, like Dogecoin DOGEUSD, + 1.02%. Instead, Leonard likes to think that the cryptocurrency market is in a similar position to the dot-com boom of the 1990s, before the crash. “I’m looking for Google Googles, + 2.97%, HPs HPE, -0.31%, Oracles ORCL, -0.60%,” he said.

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“‘Without investing in crypto, there would have been no way I could have bought this the moment it went on the market.’ ”- Terrance Leonard, software engineer and crypto investor

Look at the top 10 currencies and start from there. Some of his investments were in bitcoin BTCUSD, -0.86%, and Ethereum ETHUSD, + 0.33%, but most of his money went to the purchase of Chainlink LINKUSD, + 0.30%, a cryptocurrency launched in 2017 that sends data from the world. real to blockchains.

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Terrance Leonard, pictured in front of the house he recently bought in Washington, DC Courtesy of Terrance Leonard

Using cryptocurrency to obtain a mortgage is not foolproof. When Leonard bought his first home, the process was pretty standard. As a veteran, he was able to take advantage of the VA loan program and the process was “pretty smooth.” Originally, she contacted her lender, Veterans United Home Loans, to see if she could refinance her first home loan into investment property, allowing her to obtain a VA loan for her new home. In the end, that was not possible. So when Leonard had to get another loan to buy the property that caught his eye, he thought he would use his crypto earnings for his down payment and security deposit. This time, the process was not so smooth. “There were some problems with the proof of funds,” Leonard said. “I just wanted to be able to say, ‘Here’s my wallet.’

“Home buyers will generally have to convert crypto assets into cash to use for a down payment on a home. ”

He couldn’t just transfer the crypto investments or show his Coinbase account to satisfy the lender and his title company. Instead, he needed to cash in a bank account, as someone would with money earned on the stock market. The process could have been easier if Leonard had searched for a home from a real estate broker who specializes in transactions involving cryptocurrencies. Some brokerages have started listing properties where the seller only wants to be paid in crypto, sometimes specifying a specific investment vehicle. Unfortunately for Leonard, those brokerages didn’t have the kinds of properties he wanted, plus he wasn’t necessarily inclined to do a cash (or rather crypto) deal. “We had the lowest interest rates in a long time, so I was not going to pass up that opportunity,” he said, adding that you are more likely to see a better return on your crypto investments, even after taxes, than he is. . You would if you invested all your money in the house. For lenders, paper trail is key In the mortgage and real estate industries, using cryptocurrency investments to buy homes remains a very novel concept. And lenders are still thinking about how to deal with those assets. Crypto is such a new concept that even determining how many loans have involved home buyers with crypto investments is challenging, said Chris Birk, director of education at Veterans United. “Mortgage origination software doesn’t have fields to track something like this,” Birk said. Right now, lenders are flying blind with these would-be borrowers, as regulators and other mortgages are just beginning to issue guidelines on how to measure the strength of crypto assets. Fannie Mae FNMA, -0.42%, one of two government-sponsored companies that securitizes the majority of mortgages nationwide, requires that proceeds from bitcoin and other digital currencies be converted to US currency to be eligible assets to the sign a loan. Fannie also requires documentation showing that the digital currency was owned by the borrower. However, Freddie Mac FMCC does not consider cryptocurrency to be an eligible source of funds. And other agencies have yet to provide any specific guidance. The Department of Veterans Affairs has no regulations that specifically reference cryptocurrency, an agency spokesperson said. But the VA requires verification of deposits.

Lenders can request a transaction history of 30 to 60 days for crypto accounts. ”

Lenders will generally request a paper record, showing a 30-60 day transaction history for the crypto account. But, as Birk pointed out in a recent blog post, cryptocurrency accounts don’t always provide monthly statements like a bank would. And for now, lenders will expect borrowers to withdraw their cryptocurrency investments early in the process. “You can’t pay your closing costs with a Van Gogh, it’s the same with your bitcoin,” Birk said. “It will have to be converted, it will have to be seasonal and there will be documentation to satisfy the lender.” In part, this strict approach reflects the responsibilities of mortgage companies to flag potential criminal conduct, including money laundering. Insurers need to be able to see potential red flags, which is not so easy with crypto wallets per se. Despite the inconvenience he faced when buying his new home, Leonard was not deterred from investing in cryptocurrencies. Right now, you are still making enough of your remaining crypto investments to cover your mortgage payments on your old home. “I’m in no rush to sell,” Leonard said. “I want to make sure I play the right financial game.”