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Will Bitcoin be a Game Changer in Mortgages?

By Amanda Curry · Dec 4, 2016 · Technology

Will Bitcoin be a Game Changer in Mortgages?

Image courtesy of Flickr, Jason Benjamin

In this article, we discuss how Bitcoins are transforming the mortgage process and how they are affecting lenders, home buyers and sellers.

Will Bitcoin be a Game Changer in Mortgages?

If you are looking to buy a home, it's likely that you have a number of financial assets that can help you qualify for a mortgage. This could include your current home or property, cash in checking and savings, and other investments. However, a growing number of individuals hold assets in a new type of currency: Bitcoins. While Bitcoins are growing in popularity, many lenders remain wary about accepting this new digital currency, even though they have been labelled as an asset by the IRS.

In this article, we discuss how Bitcoins are transforming the mortgage process and how they are affecting lenders, home buyers and sellers.

What is a Bitcoin?

A bitcoin is a new currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto. Bitcoins can be used to buy merchandise anonymously. Furthermore, transactions are made with no middle men, which means banks are completely removed from the equation.

Instead of actually handing over tangible currency, bitcoins use public and private ''keys.'' These are a string of numbers and letters that are linked through an encryption algorithm. The public key is like a bank account number and the private key is similar to an ATM pin.

Bitcoins, also referred to as blockchain technology, have made it easy and cheap to purchase goods and services internationally since they are not tied to any country or subject to regulations . Bitcoins are intended to mitigate fraud, as the blockchains show records of who made a transaction and when, and these records cannot be forged.

Additionally, small businesses are finding use for them as there are no credit card fees. In fact, more than 100,000 businesses currently accept bitcoins and more than 2.5 million things you can buy at, which includes real estate.

How do I get Bitcoins?

If you are looking to acquire bitcoins, you can buy them on an exchange. There are several marketplaces called ''bitcoin exchanges,'' which allow people to buy or sell bitcoins using different currencies. These sites can also help you transfer bitcoins to other through a mobile app or computer.

You may have heard the term ''mining'' associated with bitcoins. Essentially, people compete to ''mine'' bitcoins using computers to solve complex puzzles. Once solved, a bitcoin is created. To give you an idea, currently, a winner is rewarded with 25 bitcoins roughly every 10 minutes.

Once acquired, users can store bitcoins in a digital wallet, which exists on a user's computer. You can think of this as like a virtual bank account. Since inception, the value of a bitcoin has gone from one penny to $742, fluctuating along the way.

At its highest, bitcoin was worth close to $1,000, as you can see from the Coin Desk chart below:

Bitcoin Price

Risks of Owning Bitcoins

It's important to note, that while bitcoins sound exciting, they do pose several risks. First, bitcoin wallets are not insured by the FDIC. In fact, some servers have been hacked, causing users to lose all of their bitcoins. Additionally, you could accidentally delete the bitcoins or viruses could destroy them. This could be devastating if you only have savings stored in bitcoins.

Buying a Home with Bitcoins & How it Affects the Mortgage Process

Although rare, bitcoins are already being used in the home buying and selling process. In fact, one homeowner used bitcoins to purchase his $500,000 Kansas home. Josh Zerlan decided to purchase his home solely with bitcoins in order to speed up the process and cut out the middle man. As a result, it greatly reduced the fees associated with the home buying process.

Additionally, some homebuyers are considering using bitcoins because of their various benefits, which can greatly transform the real estate process:

  • Record Keeping : All bitcoin transactions are a matter of public record and that public record cannot be changed. Bringing blockchains to real estate will disrupt the third-party escrow and title companies, whose sole purpose to validate and store records. Eliminating these entities would streamlines the process for buyers and sellers. Great for them, bad for the companies.
  • Security : Since blockchains show records of who made a transaction and when, and cannot be forged, there is less fraud and more security. This could mean less opportunity to commit fraud by presenting falsified records in the real estate industry. Less fraud during the home buying process will protect both homebuyer and seller.
  • Public Records : Public records are at the core of the bitcoin process. Without a ledger of transactions, there can be no reliability. Since not everyone is a fan of public records, this may turn off some potential homebuyers and sellers from utilizing bitcoin technology.
  • Less Paperwork : Since bitcoins are instantly transferred, there would be less paperwork to seal the deal, saving time and money. This would greatly help all that are involved in the home buying process: buyers, sellers, and brokers.

How Bitcoins Are Used in the Mortgage Process

Bitcoins can be used in a number of different ways throughout the home buying process. We took a look at some of the ways people have used bitcoins for real estate purchases in the past:

Real estate fees & closing costs : Although paying for fees and closing costs with bitcoins has yet to be widespread, one Manhattan mortgage provider made history in late 2013 when it became the first firm to accept bitcoins for real estate fees. Experts agree that until bitcoins became a widespread form of currency, they don't think that this will catch on with most mortgage providers.

Using bitcoins as an asset : Although it is rare, some lenders may accept bitcoins as a form of assets. Valuing bitcoins is relatively new for most lenders, so you may struggle to find a company to work with. Remember that you'll need to verify the value of the bitcoins you hold before submitting the proper documentation to your mortgage provider.

Documenting your bank account transactions : Mortgage providers will want to confirm how money enters your bank account to determine that you haven't borrowing money from somewhere else in order to boost your liquid assets. When going to purchase a home, be prepared with a record of your bitcoin to bank account transaction ration.

What do Experts Think?

It's clear that if bitcoins were used on a regular basis in the real estate process that blockchain technology could completely transform the real estate process. In fact, PricewaterhouseCoopers notes that blockchains could remove cost and friction from the process, create a tamper proof transaction history, and reduce delays in exchange and finalization.

PwC goes on to explain that many of the current pain points in the mortgage process could quickly be mitigated. For example, blockchain technology would streamline the exchange of contracts and release of funds, reduce the opportunity to submit falsified documents, and increase data accuracy and availability, streamlining the service process. To reiterate, PwC explains that blockchain technology would provide these benefits for the mortgage industry:

  • Reduce legal fees
  • Opportunity to speed up the release of funds
  • Data is trusted, accurate and secure,
  • Process steps can be automated into smart contracts
  • Create shared copies of legal agreements and full electronic audit trail of changes
  • Can confirm agreement based on digital identity and defined permissions

As you can see, integrating bitcoins into home buying and selling would completely revolutionize the mortgage process. Although bitcoins are more secure, there is greater transparency, and better public records, third-party escrow and titling companies could be eliminated because they streamline the process. If introduced regularly, the entire mortgage process could be disrupted and changed. Only time will tell if this crypto-currency will become widespread throughout the mortgage industry.

Streamline the Mortgage Process Today

If you are looking to streamline the mortgage process, there is an easier solution. With BeSmartee, you can compare hundreds of loans at once and see rates and fees in real time. Once you find a loan that's right for you, you can get instantly approved and close your loan online

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