Bitcoin-backed loans enable home buyers to avoid selling crypto

New financial products allow homebuyers to use Bitcoin as collateral for down payments instead of selling their holdings. This method enables borrowers to maintain exposure to Bitcoin's potential price appreciation and avoid triggering capital gains taxes, though it introduces new risks.

Better and Coinbase launched a product that provides two loans at closing: a conventional Fannie Mae mortgage and a second loan to fund the cash down payment. The second loan is secured by the pledged Bitcoin and a second lien on the property. Better reported that pre-applications for these loans have reached $360 million in requested volume.

While these loans offer liquidity, they carry significant risks. Borrowers must maintain specific collateral ratios—for example, pledging $2.50 of Bitcoin for every $1 borrowed—and face potential liquidation of their Bitcoin if payments are missed for 60 days or if the asset's price drops sharply. Unlike traditional loans, these products replace liquid savings with a second debt obligation and lock the collateral for the duration of the loan term.