Better and Coinbase Let Mortgage Borrowers’ Bitcoin Be Reused as Collateral
Crypto is treated more like an IOU than secure collateral
Better Mortgage and Coinbase have launched a home loan that lets people use bitcoin as collateral for their down payment. However, a key detail is changing how that bitcoin is held. Better Mortgage can now reuse the pledged bitcoin, meaning the borrower does not get their original coins back at the end of the loan. Instead, they receive the same value in bitcoin.
This news comes after the product became available to the general public last week. Since the launch, pre-applications have reached $360 million in requested loan volume. This is an increase from the $260 million projected by borrowers on the earlier waitlist.
Rehypothecation is the practice of using pledged collateral in another transaction. In this case, the borrower’s bitcoin is not sitting untouched in custody. It is being used by Better while they promise to return an equivalent amount later. This makes the arrangement feel more like an IOU than a secure store of assets.
Key numbers for the new loan
- Borrowers must pledge $2.50 of bitcoin for every $1 borrowed for the down payment.
- In a $500,000 home purchase, a buyer might pledge $250,000 in bitcoin for a $100,000 down payment.
- Applicants must still meet standard Fannie Mae income and credit score requirements.
- Only 35.9% of current applicants hold more than $500,000 in crypto.
- 38% of applicants plan to buy more crypto in the next three months.
- Coinbase One members may receive a closing-cost credit of up to $10,000.
What the loan structure requires
At closing, the borrower receives two separate loans. The first is a standard mortgage secured by the home. The second funds the down payment and is secured by the bitcoin. The bitcoin moves from the borrower’s personal account into Better’s custody account on Coinbase Prime.
Both loans are managed by Better, and borrowers make one combined monthly payment. Coinbase acts only as the technology provider and custodian. They do not decide when to liquidate the collateral or extend credit.
Better stated that nothing in the product turns crypto holdings into qualifying income. Borrowers cannot use their bitcoin to bypass standard debt-to-income thresholds or credit checks for the main mortgage. The crypto only solves the problem of having cash for the down payment.
Delinquency and liquidation rules
Unlike typical crypto loans, a drop in bitcoin’s price does not trigger a margin call. A margin call is when a lender demands more collateral because the value of the original collateral has fallen. If bitcoin loses value, the borrower is not forced to add more funds immediately.
Liquidation only happens if the borrower misses their combined payment. After 60 days of missed payments and notice to the borrower, Better may sell enough bitcoin to cover the debt. Foreclosure on the home typically begins after 180 days of delinquency.
If the home goes into foreclosure, the sale proceeds first repay the main mortgage, then the bitcoin-backed loan. Any remaining money goes to the borrower. Only bitcoin is currently accepted as collateral, though the original announcement mentioned USDC as a future possibility.
Barriers to getting the bitcoin back
A major constraint for borrowers is that they cannot recover their bitcoin until the entire conventional mortgage is paid off or refinanced. This could mean the collateral is tied up for 15 to 30 years.
Even if a borrower wants to pay off just the second loan to unlock their crypto, Better says the collateral remains pledged. The only other way to release the bitcoin early is to sell the home and repay the down payment loan as part of the sale.
Better claims its agreements comply with applicable laws, including insolvency rules. However, the company has not explained whether each borrower’s bitcoin is separately identifiable. It remains unclear who holds legal title after the bitcoin is reused or what rights a borrower would have if Better or its partners failed financially.
Why this matters for homeowners
This product offers a new way for crypto holders to enter the housing market without selling their assets and triggering taxes. However, it introduces counterparty risk. Borrowers are trusting Better to return equivalent bitcoin later, rather than holding their own coins directly.
The model shifts the traditional security of holding your own keys in a private wallet to relying on a lender's custody and financial stability. For now, it remains a niche product for those with significant bitcoin holdings who meet strict traditional lending criteria.
