Cryptocurrency just became further entrenched in the mortgage world thanks to a new partnership between Better and Coinbase.
The two companies have collectively launched a “token-backed mortgage” that adheres to the standards of Fannie Mae.
That means it’s a conforming mortgage that enjoys favorable underwriting guidelines and lower mortgage rates versus typical token-backed loans.
Borrowers will be able to pledge their Bitcoin (BTC) or USDC as collateral to fund their cash down payment, without liquidation.
And all Coinbase One members are eligible for a rebate worth 1% of the loan amount, capped at $10,000 to cover closing costs.
Better + Coinbase Mortgages Backed by Fannie Mae
There has been a push for a while now to allow crypto in the mortgage world.
A handful of lenders have already started offering crypto mortgages, including Figure, Newrez, Milo, and Moon Mortgage.
But this latest offering involves two very big names in the business, Better Mortgage (NASDAQ: BETR) and Coinbase, which is a household leader in the crypto world.
Together, they are offering so-called “token-backed mortgages,” which allow the use of cryptocurrency while also adhering to the underwriting guidelines of Fannie Mae, an industry first.
This gives them conforming loan status, the most common type of mortgage on the market.
As such, they are more liquid and easily saleable to investors of mortgage-backed securities (MBS).
Being more liquid means mortgage rates can be lower, all else equal.
This contrasts some other crypto mortgages that allow for virtual currency usage, but might come with steeper costs.
How the Token-Backed Mortgage From Coinbase Works
Better says unlike traditional securities-backed loans used for down payment, mortgage borrowers will be able to pledge specific quantities and/or certain types of tokens, rather than their entire account value.
This is facilitated via Coinbase Custody, whereby the customer can pledge Bitcoin or USDC as collateral to fund their down payment in lieu of cash.
They say additional digital assets will be eligible over time, including tokenized equities, fixed income, and other tokenized real estate assets.
Instead of having to bring cash to the closing table, you pledge Bitcoin or USDC and receive two loans.
The first is a conforming mortgage backed by Fannie Mae, and the second mortgage is for the down payment, secured by the crypto that you pledge.
Eligible tokens are valued at 40% of market value for BTC and 80% for USDC, meaning $100,000 in BTC would give you $40,000 in down payment funds (or $80k for USDC).
The down payment loan (second mortgage) carries the same interest rate and repayment term as the token-backed first mortgage.
Better Crypto Mortgage Example
Here’s an example of a $400,000 home purchase with a 20% down payment (helpful to secure a lower interest rate and avoid PMI).
That would normally require an $80,000 down payment, but using a crypto pledge, you can only come out of pocket $40,000.
The other $40,000 comes via the pledge, requiring $100,000 in Bitcoin to get the loan.
As noted, you do pay interest on the loan and it’s the same interest rate as the first mortgage, which generally speaking is fairly attractive because second mortgages are typically priced a lot higher.
However, the pledge isn’t released until your mortgage is fully repaid or refinanced.
Both loans are originated by Better Mortgage, and until the loan is repaid, Better Mortgage retains custody of your crypto in its custodial account on the Coinbase platform.
A minimum 680 FICO is required, 15-year and 30-year fixed mortgage options are available, and any property type allowed by Fannie Mae works, including single-family homes, condos, and townhouses.
There are no margin calls or top-ups associated with the pledge, and if BTC drops in value, the mortgage terms remain unchanged and no additional collateral is required by the borrower.
They say “market movements alone never trigger liquidation,” and that collateral is only at risk in the event of a 60-day loan delinquency, which they claim is similar to a conforming mortgage.
In addition, Better says those pledging USDC can “earns rewards that can help offset mortgage payments,” effectively reducing their mortgage interest rate in the process.
Coinbase One Members Get a 1% Lender Credit on Their Mortgage
To sweeten the deal, Better is also offering a rebate (lender credit) worth 1% of the mortgage loan amount to cover closing costs and fees.
It is capped at $10,000, meaning a borrower who takes out a $1 million mortgage would get $10,000 to use toward things like a loan origination fee, title insurance, or even a rate buydown.
Collectively, this means someone taking out a Better + Coinbase mortgage might be able to get approved more easily while not settling for a higher interest rate in return.
Nor will they potentially trigger a taxable event by selling their assets, an issue that has prevented some crypto holders from buying a home.
Interested borrowers can visit the Better website to register for early access to this new product.
As always, take the time to compare rates/fees and the total cost to other banks and lenders to ensure you don’t miss out on a superior deal, even after factoring in any special promos.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.