Owning a beautiful Brownstone in New York City is a dream come true for most people. Characteristically, Brownstones are unique and arguably one of NYC’s best real estate investments. Additionally, Brownstones offer spacious living quarters, with a considerable amount of privacy, all of which is rare in New York City.
Moreover, purchasers of Brownstones experience less financial scrutiny compared to condos and co-ops. Specifically, when purchasing a Brownstone, there isn’t an application that must be submitted to a board for approval.
While the market is currently very competitive, the dream of owning a Brownstone may be closer than most think as Crypto has arisen as a top way to purchase a Brownstone in New York City.
Read below to discover the top ways to purchase a Brownstone in New York City with Crypto.
What is Crypto?
Crypto has become increasingly popular over the last couple of years. If you’re not already familiar with Crypto, it is an alternative international electronic currency, not controlled by any government, including the United States Federal Reserve. Crypto is similar to casino or arcade chips. You have to tender legal money to receive credit or Crypto money. You can use Crypto to purchase goods and services. Using Crypto keeps investors anonymous from government oversight. However, Crypto is not protected by FDIC insurance. Overall, when using Crypto, you operate on your own terms, free from government oversight, which is Crypto’s main appeal.
Crypto has infiltrated almost every facet of society, including the real estate industry. Although still a novel concept, the idea of using cryptocurrency for mortgage lending is gaining traction. Currently, Crypto may be used to purchase real estate. Specifically, borrowers may use crypto to buy a brownstone in New York City.
Read below for the top four (4) ways Crypto may be used to purchase your dream brownstone in New York City.
- Defi (Decentralized financing)
Defi is set to transform the real estate industry. Specifically, individuals can purchase a home using borrowed money and get paid interest simultaneously, thanks to Defi.
Decentralized Financing or Defi refers to financial platforms and applications powered by blockchain that can be used to manage money. Generally speaking, these platforms provide most of the equivalent opportunities traditional financial institutions do for fiat money.
Defi creates new lending solutions and is a viable alternative to traditional financial platforms. Defi allows users to use peer-to-peer (P2P) networks to interact and connect without even knowing the other user.
Contrary to the conventional financial system, all Defi applications operate without centralized government authority. Specifically, they are independent of government currencies, banks, and other traditional financing infrastructure.
- Cefi (Centralized finance) (Custodial crypto loans)
With a custodial crypto loan, the applicant will pledge a percentage of their crypto holdings as the collateral for the borrowed money. Like any other type of secured loan, the applicant retains ownership of their cryptocurrency while paying off the loan. As such, if you don’t pay off the loan, you stand to lose a substantial portion of your portfolio.
Generally speaking, users can borrow at least 50% of their crypto balance. However, some platforms will allow users to go up to 90% of their crypto value. Typically, the lender places restrictions on what the user may do with the assets. However, if you default or the value of your Crypto decreases significantly, you could lose the assets entirely.
Also, keep in mind that some platforms may be able to covert users’ loan funds into U.S. dollars or in select cryptocurrencies. However, the type of cryptocurrencies eligible to secure a loan for a property is limited and unique to each platform. If you don’t have the right kind of cryptocurrency, you will have to exchange it for an eligible currency before starting the process.
- Use Crypto for a Traditional Mortgage
This is a very new topic regarding mortgage lending and using cryptocurrency. For the most part, you may use Crypto to purchase a home with a traditional mortgage, assuming that you properly plan ahead and you convert the Crypto to cash in enough time. However, cryptocurrency is on the rise in the real estate industry. The main hurdle to using Crypto to buy property is that the downpayment monies must be seasoned. This is just another way of saying that the lender wants the money to be held in your account for 60 days or longer, depending on the bank’s requirement.
The general rule of thumb is to deposit the cryptocurrency in your personal bank account at least 60 days before closing on your loan. However, the more time the money is deposited into your bank account, the better. For an added layer of protection, you may want to consider depositing the money a few weeks to a month before you even start shopping for a new property and get preapproval from a lender.
Due to recent changes in the Conventional guidelines in mortgage lending, banks must inspect at least three (3) months of an applicant’s business bank account if they are self-employed. However, keep in mind, if you are self-employed and will be depositing the cryptocurrency into your business bank account, then you should deposit the funds in the account at least 90 days before closing on your loan. However, even if you are self-employed, As long as you deposit the money into your personal account, the 60-day rule applies and not the 90-day rule.
One possible way to circumvent the seasoning requirement is to transfer the capital to a third party and have them gift it to you. However, you should consult your attorney before taking advantage of this option. Because this action can get tricky depending on your lender and the loan type you are seeking. Specifically, when an applicant applies for conventional financing, any direct wire gift to the title company is not inspected further. As such, the donor does not have to prove the source of the funds. On the other hand, where an applicant uses VA, FHA, or USDA financing, the source of the fonts has to be traced. In many instances, if the donor does not have adequate money in the account before the cryptocurrency is deposited, the lender will fire in bed the donor cannot donate the funds for the down payment.
Overall, if you are interested in using cryptocurrency to purchase a property, you must plan ahead. You must also open a bank account with an insured cryptocurrency exchange network and link your crypto wallet and bank account. Lastly, you also should consider taking out more money than you actually need just to be on the safe side and have a cushion. The worst that can happen is that you need to reinvest that money back.
- Private lender
A private lender is someone who uses their capital to finance investments, such as real estate and profits from interest paid on the loan. Private lenders are not affiliated with a bank or other financial institution and instead process the transaction directly with the borrowers. There are several benefits to purchasing your brownstone through a private lender. First, you will have complete control over the process and not be subject to strict lending criteria. Generally speaking, private lenders have fewer requirements compared to institutional lenders. Lastly, a private lender is beneficial because they can typically finance a project that can’t be funded through a traditional lender. Private lenders are great options for flippers and fixer-upper properties.
In 2022, we can expect crypto to increasingly infiltrate the real estate market. Overall, crypto is a game-changer, offering the prospect of homeownership to a broader market. Cryptocurrency can help developers, sellers, and brokers to market available properties both within their locality and abroad. As technology advances, one can expect to see more homes being purchased with Crypto in the near future. With several options available, like the ones mentioned above, buyers should be encouraged at the prospect of purchasing properties using their cryptocurrency assets.
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Authored by: Stanley Montfort
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