Can I Get a VA Loan with Crypto?

Updated: April 6, 2023
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    Over the past decade, cryptocurrency holdings have skyrocketed. And the military community is no exception, leading many veterans to ask if they can use these assets to buy homes or utilize them toward a down payment or closing costs.

    While you can use cryptocurrency during the homebuying process, key limitations exist. Here we discuss the main considerations around cryptocurrency and down payments and how crypto impacts VA loan requirements.

    Cryptocurrency and VA loans

    The Internal Revenue Service (IRS) treats cryptocurrency as property, not currency or legal tender. As a result, most lenders will not accept your cryptocurrency holdings directly. Despite this reality, options exist to use crypto to get a VA loan.

    Using Crypto for VA Loan Closing Costs

    Despite not requiring a down payment, VA borrowers must still have enough cash to cover closing costs. Closing costs are the fees associated with a real estate transaction. For VA loans, closing costs may include the VA funding fee, origination fees, underwriting fees, real estate commissions, prepaid taxes, appraisal and discount points.

    Borrowers can include certain closing costs – like the VA funding fee – into the entire loan amount. However, the remaining closing costs must be paid in cash at closing if the seller is unwilling to cover these. Closing costs typically vary from 2 to 5 percent of the loan amount, which can be anywhere from $6,000 to $15,000 on a $300,000 home.

    To utilize crypto holdings towards a VA loan, borrowers can convert their holdings to cash and apply them to their closing costs.

    Using Crypto for a Down Payment

    Another option for cryptocurrency holders is to apply them as a down payment on the home.

    A down payment can decrease monthly payments and lifetime interest. Significant down payments may also impact the VA funding fee for those required to pay.

    The VA funding fee is a one-time fee paid to the Department of Veterans Affairs (VA). The fee typically ranges from 2.15 to 3.3% of the loan amount on purchase loans. However, with a 5% down payment, the VA funding fee drops to 1.5%, and a 10% down payment reduces it further to 1.25%. 

    Keep in mind that not every VA borrower pays the VA funding fee. Those exempt include veterans with a disability rating, Purple Heart recipients and surviving spouses.

    To utilize cryptocurrency toward a down payment, borrowers must still convert the digital currency to cash.

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    Mortgages, Crypto and Documentation

    The above scenarios share a common requirement: converting the asset to cash. As with any large asset transfer, your VA lender will require clear documentation of cryptocurrency assets and transfers. More precisely, lenders will require a clear paper trail confirming that A) you own the crypto holdings and B) you have converted them to cash.

    Confirm the documentation requirements with your lender, as they may vary. Some lenders may accept screenshots from your wallet; others may require more formal account statements. Ultimately, it’s up to the individual lender, so confirm early in the VA loan application process what documentation they’ll need to cover their crypto-to-cash paper trail requirements.

    Note: The federal government also mandates that lenders follow strict anti-money laundering requirements. As a result, if you have any large crypto purchases, plan to document where you received the original funds to make those purchases.

    Tax Implications

    Before selling crypto holdings to cover VA loan requirements, borrowers should consider the potential tax implications. Since the IRS treats cryptocurrency as property, sales are subject to property-related taxes. In other words, if you sell your holdings for more than you purchased them, you will be subject to capital gains taxes. And depending on how long you held that cryptocurrency, you’ll either pay ordinary income tax rates or the more favorable long-term capital gains rates.

    Bottom line, if unsure of the tax implications of a cryptocurrency sale, you should consult with a tax professional. With proper planning and tax strategies, you can at least minimize the tax bill you’ll face.

    Overall, communicate your intent to use crypto holdings early on in the loan process. A better-informed loan team can help minimize hurdles you may experience later in the process.

    Written by Maurice "Chip" Naylon

    Maurice “Chipp” Naylon spent nine years as an infantry officer in the Marine Corps. He is currently a licensed CPA specializing in real estate development and accounting.