The 'crypto mortgage' could become yet another way that investors crowd out traditional homebuyers

August 2024 · 4 minute read
2022-02-27T11:30:00Z

As US real-estate prices hit records in many markets, some people are pointing to investor activity as one of the causes of the high demand and increased competition. Now, international investors who have been unable to secure financing and were stuck on the sidelines have a new method of purchasing real estate in the United States: a so-called crypto mortgage.

Using bitcoin and other cryptocurrencies to purchase real estate isn't new. But one company is promoting a new financial product that it says would allow buyers to use the blockchain to apply for credit.

How it works

Milo, a financial-tech company in Florida, recently launched what it describes as the world's first crypto mortgage loan product. It says buyers worldwide can use its platform to finance the purchase of a US home with bitcoin.

Milo offers buyers with crypto wealth equivalent to the sale price of their desired home a 30-year fixed-rate US crypto mortgage, a loan that uses bitcoin as collateral. The model is similar to the way a homebuyer seeking a traditional mortgage might offer investment accounts, savings, or other property to underwriters as proof of assets and ability to repay.

Milo determines whether a borrower is qualified by using their crypto wealth instead of a FICO score or income on a tax return. The company says that crypto borrowers do not need a cash down payment at the time of the purchase and that once they're approved it finances 100% of the purchase and stores the crypto with an unidentified third party.

Like a traditional lender, Milo earns money on interest and closing costs. If a homeowner goes into foreclosure, Milo sells the property to recoup the amount they owe.

But, notably, the homebuyers don't have full control of their assets. If a crypto borrower wishes to sell their property, they must pay Milo the full loan amount in US dollars before the company releases a lien and transfers the bitcoin back.

What it could mean for investors (and regular homebuyers)

Many major US markets are saturated with investor activity and outside buyers in some cases are driving prices higher than locals can afford. A recent report from Redfin indicated that investors were responsible for over 18% of home sales in the US — about $50 billion worth of transactions — in the fourth quarter, a record.

Some of the hottest cities for investor activity were Atlanta, Charlotte, and Jacksonville, among other markets in Texas and the Southwest. And as investors and traditional buyers compete for properties like starter homes and multiunit buildings, housing-price appreciation is outpacing wages and the savings that many have earmarked for a down payment.

Meanwhile, international investors have sought a stable place to park their money while gaining appreciation. A report from the National Association of Realtors said foreign buyers accounted for $54.4 billion in real-estate transactions from April 2020 to March 2021; while that was less than 2% of total transactions during this period, it represented over 100,000 individual foreign buyers.

A crypto mortgage could simplify the process of purchasing real estate for investors abroad who do not meet the underwriting standards of US lenders. But introducing a way for these buyers to purchase US real estate — as Milo markets itself as doing — could contribute further to the bubbly market conditions in hot metros. A representative for Milo told Insider it had processed more than $400 million in loans and had a 7,000-person wait list.

Considering the volatile nature of bitcoin and the overheated US housing market, getting a crypto mortgage could be a risky endeavor for prospective buyers. But as investor appetite for US real estate grows, it's likely that demand will come from buyers both in the US and abroad.

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