Many within the ranks of the crypto-rich have a peculiar problem: Despite having digital assets worth hundreds of thousands — or even millions — of dollars, they can’t get a mortgage.
That’s because many Bitcoin millionaires are young, do not have significant or steady income, or don’t otherwise have much wealth. The typical mortgage lender does not account for digital assets when calculating net worth.
Enter Milo, a Miami-based fintech, which said this week it has begun offering 30-year mortgages — with zero down payment — to borrowers who put up their crypto assets as collateral. The firm says it is the first to underwrite a mortgage on the basis of customers’ digital assets.
Milo, founded in 2018, streamlines the mortgage process for individuals who might struggle to secure a bank or private loan. Its customer base today is primarily foreign nationals, who have had to borrow at very high rates or, if their wealth is concentrated in crypto, sell it to purchase U.S. real estate, said Milo founder and CEO Josip Rupena.
“Our customers were asking us for this kind of solution,” Rupena said.
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Crypto mortgage lending is new, but the real estate industry has been testing ways to facilitate crypto transactions, and utilize the blockchain technology that undergirds them, for a few years. The crypto market is valued at around $2 trillion.
In some locales, including Miami, a few home sellers are now accepting Bitcoin as payment. But they’re not really accepting the cryptocurrency as legal tender, Rupena said.
“The buyer is transferring Bitcoin to an intermediary, who sells the Bitcoin for dollars, and the seller is getting dollars,” Rupena said. “That’s actually a taxable event.”
A prospective homebuyer’s ability to leverage Bitcoin holdings to purchase a home without having to sell it — which can trigger hefty capital gains taxes — is key, Rupena said.
“There’s an opportunity cost to selling your digital assets,” Josip said. “Anyone that has Bitcoin today really wants to hold it for the long run.” (Well, not everyone; the median hold period for Bitcoin is 75 days.)
Milo says it already has a “large waitlist” of prospective crypto mortgage borrowers. It will finance up to 100 percent of the home purchase on a one-to-one basis; a borrower must pledge $1 million of Bitcoin to buy a $1 million home. The high loan-to-value ratio obviates the need for a down payment, Rupena said.
The mortgage rate is a function of the amount of crypto pledged as collateral. The more the borrower pledges, the lower the rate. Borrowers can pay their monthly payment in dollars, Bitcoin or a so-called stablecoin — crypto pegged to the value of the U.S. dollar.
The drawback for the borrower is that the Bitcoin is locked up with a third-party custodian, and so can’t be sold, even if its value plunges. The price of Bitcoin, like that of most cryptocurrencies, is extremely volatile. It’s not uncommon for its value to fall 20 percent in a single day. Long-term, however, the trend has been up.
If the price of Bitcoin drops sharply, the borrower may get a margin call, Rupena said.
“They’ll have the ability to pledge more crypto,” Rupena said. “And if they don’t, at that point in time we’ll look at the options and maybe liquidate some of those assets.”
For now, Bitcoin is the only crypto collateral that Milo accepts, but over time the firm will roll out its mortgage service for other digital assets based on customer demand. Milo’s crypto mortgage is a bet on the long-term future of cryptocurrencies, Rupena said.
“People choosing to allocate a portion of their net worth, if not a significant portion of their net worth, into digital assets, is probably here to stay,” he said.