Figure Review 2023: Is a Crypto-Backed Mortgage Worth It?
One challenge crypto-wealthy individuals face is the inability to directly reinvest their crypto into other assets, such as real estate. For example, a buyer would first need to liquidate their holdings into fiat currency to purchase a house.
While doing this might seem simple, it's also a taxable event. The IRS treats crypto like property, so selling it can result in a capital gains tax. Depending on how long an investor has held their crypto, this could have significant financial implications.
New crypto-backed mortgages are entering the market to make it easier for individuals to use their crypto to purchase real estate without creating a taxable event. Instead of selling crypto to make a down payment, crypto is used as collateral.
Figure is a new fintech in the crypto space offering crypto-backed lines of credit. This article will cover what Figure is, its services, and what to consider when leveraging crypto assets to purchase a home.
Borrowing Limit - 8
Fees & Costs - 4
Customer Service - 4
Availability - 3
Supported Currencies - 2
Pros & Cons
- Eliminates the need to liquidate crypto, which would result in a taxable event
- Simple online application process
- Quick approvals: Figure says it offers “approval in 5 minutes, funding in 5 days”
- Loans are geared exclusively toward crypto-wealthy borrowers
- Crypto is volatile, which could overleverage a borrower
- Interest rates aren’t necessarily competitive with a traditional mortgage
- There isn’t a lot of information available on their website about fees, especially for crypto products
What Is Figure?
Figure is a new fintech company with a crypto twist. Founded in 2018, Figure’s mission is to “transform financial services through blockchain technology.” They aim to create an efficient and fast lending process that reduces costs for both borrowers and lenders.
Figure offers financial services to both individuals and businesses. Its personal service offerings include HELOCs, crypto-backed mortgages, and traditional mortgages in partnership with Homebridge. Figure offers equity solutions and payment processing infrastructure for companies that compete with platforms like Square and Stripe.
Figure uses the Provenance Blockchain to process loans. This blockchain was also launched in 2018 and is designed specifically for financial service providers. Businesses use the blockchain-based ledger to register ownership and process trades across different asset types and financial markets.
Figure’s crypto-backed mortgages are designed for crypto-wealthy individuals. These borrowers may have a large portion of their net worth in crypto. With a traditional mortgage, a borrower would have to liquidate their crypto into fiat currency to put a down payment towards a home.
Selling crypto creates a taxable event that could result in significant financial penalties for borrowers. By allowing crypto-wealthy individuals to leverage their digital assets, Figure attempts to eliminate the need to liquidate the crypto in the first place.
Figure isn’t the first to enter the crypto mortgage space. Its primary competitors are Ledn and Milo. What sets Figure apart is that it is building an entire financial services ecosystem for businesses. As Figure grows, it could become a one-stop shop for real estate investors and property managers.
Read more >>> Tax Guide to Cryptocurrency Investments
How Does It Work?
Figure offers both crypto-backed and traditional lending products. Its primary lending model relies on collateral — whether in the form of crypto or equity in a property.
Crypto Mortgage PLUS
Crypto Mortgage PLUS is Figure’s flagship crypto product. Borrowers holding Bitcoin or Ether can lock in a 30-year fixed line of credit up to $3 million that can be used towards purchasing a home.
You can use your crypto as collateral to back a loan, however unlike with banking in fiat currency, the crypto is not rehypothecated. This means Figure can’t use a borrower’s crypto for their own transactions or to pursue financial gain.
One thing to note about the Crypto Mortgage PLUS is that, despite its name, it isn’t a mortgage. The loan is simply a line of credit used to fund a down payment on a home. It supplements a mortgage, but it doesn’t entirely replace one.
This option allows borrowers to borrow up to 50% of the value of their crypto to make a 20% down payment. The rest of the property is financed through a traditional loan. The purpose of taking a loan out against collateralized crypto is to avoid a taxable event.
Traditional Mortgage Services
To complement its Crypto Mortgage PLUS, Figure offers a suite of other traditional mortgage products.
Figure’s primary offering is a HELOC. Like the Crypto Mortgage PLUS, a HELOC is simply a line of credit issued against the equity of a property.
According to Figure’s website, an applicant can receive up to $400,000 in funding in less than five days. The use of blockchain technology allows Figure to process loans and issue payments faster.
As of March 2022, Figure no longer issues new mortgages. Instead, the company works with Homebridge to help customers obtain a traditional mortgage or refinance an existing one.
In addition to meeting personal lending needs, Figure offers a suite of business products.
Figure Pay uses blockchain technology to provide “Banking in a Box” for fintech and non-bank lenders. As a third-party vendor, Figure provides companies with banking services solutions for their customers. The blockchain allows businesses to process transactions quicker and at a lower cost, creating cost savings for everyone.
For traditional retailers, Figure Pay provides payment infrastructure similar to Square or Stripe. It promises lower interchange fees while simultaneously providing businesses with invaluable customer data.
The other main selling point of Figure Pay is instant settlement for payments. This allows businesses to collect payment immediately rather than waiting for a third party to clear the payment on their behalf.
Figure also helps businesses scale by providing equity management, support in raising funds, and the ability for private companies to access more liquidity. Lastly, investors can search for unique opportunities on Figure’s investor marketplace.
What Are the Fees & Limits?
Figure’s Crypto Mortgage PLUS is currently waitlist-only and the website does not disclose the fees for this offering.
Figure's crypto lines of credit are available for up to $3 million. Borrowers who opt for this type of loan can take out a line of credit up to 50% of the value of their crypto assets.
For traditional HELOCs, Figure offers lines of credit ranging from $20,000 to $400,000. A borrower's FICO credit score determines the maximum loan amount:
|FICO Score||Maximum Loan Amount|
Additionally, the combined loan-to-value ratio for primary, owner-occupied properties is based on a borrower’s FICO score:
|FICO Score||CLTV Eligibility Cap|
According to the fine print on Figure's website, Borrowers seeking a HELOC should also expect to pay an origination fee of up to 4.99%. Other fees may be assessed as well, including recording fees and subordination fees. Fees vary by location.
Can I Use Figure To Invest in Real Estate?
While Figure isn’t a real estate investing platform, there are a few different ways investors can use Figure’s services to leverage their crypto assets.
Investors with high-value crypto assets can join the waitlist to learn more about the Crypto Mortgage PLUS line of credit. By leveraging their crypto to purchase real estate, investors may be able to build equity in a physical property or capitalize on that real estate by generating cash flow.
Figure’s equity solutions marketplace also creates an opportunity for investors to invest in web3, crypto, and other financial industry disrupters.
Read more >>> What Is Web3 And Why Should Investors Care?
Is There Any Customer Service?
Figure offers access to customer representatives in its different lending areas. Their contact information is on the FAQ page.
Figure also offers customer support for its blockchain-based infrastructure. Users need to set up a wallet to use the Provenance Blockchain or its native HASH token. Figure acts as a custodian of the private keys required to access the wallet. Support is provided to facilitate any issues that arise with its wallet services.
According to feedback provided to the Better Business Bureau, users do not report having a good experience with Figure’s customer service. Complaints include too much dependence on a computer to process sensitive personal information.
What Are the Risks?
Lending products that leverage crypto as collateral are a relatively new, untested concept. There are several risks to consider before pledging crypto on a platform like Figure.
First, investors who put up crypto as collateral are essentially betting that the digital asset will retain or appreciate. Crypto is a highly volatile asset class that can unexpectedly decrease in value. If that happens, a borrower risks overleveraging themselves on a loan their crypto cannot repay.
Second, while blockchains are difficult to hack, blockchain-based platforms are not. Borrowers considering a crypto-backed loan need to be aware of the cybersecurity risks and their exposure to hackers before committing their crypto as collateral. Third-party platforms can increase a crypto investor's risk of theft.
Last, a Crypto Mortgage PLUS is not actually a mortgage. It's simply a line of credit used to provide a down payment on a home. This type of lending product allows high crypto net worth individuals to put their digital assets to work and it creates a new form of financing that didn’t previously exist.
Investors need to know the financial risks of financing a down payment backed by crypto instead of a cash payment. The APR on these lines of credit seem to be higher than traditional 30-year mortgages. Plus, the math will really start to work against borrowers if their collateralized crypto falls in value.
While Figure is unique in that it allows borrowers to use crypto assets to provide a down payment on a home, there are other ways a borrower can obtain a low-cost mortgage too.
Rocket Mortgage is an online-based mortgage provider. It was created in 2015 as a spin-off of Quicken Loans. It is the first lender to provide closings electronically.
Rocket Mortgage allows borrowers to complete the entire application process electronically. Borrowers who use Rocket Mortgage have an opportunity to lock in their rate for up to 90 days which is a big benefit right now with interest rates on the rise.
SoFi is another fintech alternative to Figure. Interestingly, Mike Cagney, one of the founders of SoFi, is also a founder of Figure.
Like Rocket Mortgage, SoFi borrowers can lock in an interest rate for up to 90 days. Instead of targeting high-net-worth individuals, SoFi focuses on first-time homebuyers. Borrowers who meet first-time homebuying criteria can qualify for a mortgage with just 3% down.
Figure is a new way of leveraging the capital created by digital assets. It's primarily designed for high-net-worth individuals looking to use crypto to put a down payment towards a home. A crypto-backed loan allows borrowers to do that while mitigating the risk of capital gains taxes on their liquidated crypto.
Figure is more of a line of credit provider than a mortgage servicer. The company issues lines of credit backed by collateral. That collateral can be in the form of crypto or equity in a property or a business.
Loans collateralized by crypto are a relatively new offering and have not been sufficiently tested in the market. While companies like Figure provide solutions to individuals with extensive crypto holdings, backing a loan with crypto assets is risky.
Volatility in the crypto markets can expose a borrower to significant price fluctuations and asset depreciation. Before embarking on any financing opportunities backed by crypto, investors should understand their cost basis and the impact that price volatility could have on their financial health.
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