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I find myself in a situation where I'm trying to buy a house, but don't have the money readily available. And my bank won't give me a loan, in spite of not having any problems with loans/money in the past, because I can only promise them that I will pay them the money I get when I sell the apartment we own, as well as our small monthly income, and then profits from my Bitcoin in the future.

At the end of the day, I won't be able to start paying off the loan if they hand me the full amount to buy the house right now and expect the typical monthly "payback fee". It's a very specific house with sentimental ties to me, up for sale right now, which is why this is time-sensitive.

But then I had this thought: Why would they not pay for the house right now, and then simply let me "rent it" from them until I've either paid it off, die, or go completely broke? Does the house lose any value while I live there and pay them back as much as I can?

I'm guessing that I'm missing something painfully obvious, but it seems to me that the bank risks nothing by buying the house "for" me, then have me live there for any amount of time, and when I'm gone, they still have the house and it may even have appreciated in value at that point. Plus they got all that money I paid them while I was around/alive, so they didn't lose any money, but gained a bunch.

In my mind, this seems like a win-win situation. I get to move in to the house and they get their money and then some no matter what. Why would they not want to do this, assuming that I'm not some kind of dangerous criminal who brings home a whole gang and have shootouts every other day, decreasing the value of the property?

J S
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    There's an answer somewhere around here explaining that banks are highly restricted in what they can invest in, but I can't find that answer at the moment. There are a lot of questions of the form "why don't banks invest in X?" – Tanner Swett Apr 04 '21 at 23:18
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    “Profits from my Bitcoin in the future” - that makes your bank running away. – gnasher729 Apr 05 '21 at 13:49

5 Answers5

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Simple answer, they are in the banking business not the landlording business. The same reason a coffee shop won't sell you a car even if there was some scheme where it benefitted them.

JohnFx
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  • Well, isn't making money part of the "finance business"? Not trying to be rude or sarcastic; genuinely wondering why they wouldn't do this. – J S Apr 04 '21 at 22:25
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    Making money is part of almost every type of business, not just the finance business. Using the asset (i.e. the house in this case) is one thing. Being a landlord is another: it carries other types of risks and expenses. For example: what happens when you don't pay your rent? Some jurisdictions prevent the landlord from kicking the tenants out before a certain amount of time has elapsed. In my area, it's 3 months; image only being able to kick out the tenant after 3 months of non-payment. – zmike Apr 04 '21 at 22:50
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    @zmike: Landlords may also be required to perform repairs and routine maintenance, which can get very costly and/or complicated depending on the circumstances. There are also a ton of other weird edge cases, such as a tenant opening up a wall (in violation of the lease) and discovering asbestos (which now has to be disposed of safely, or else the property is legally uninhabitable). Banks obviously don't want to get involved with that sort of nonsense. – Kevin Apr 05 '21 at 00:30
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    @J S - Arguably yes I should have been more precise. They are in a specific niche of the finance business that doesn't include the type of deal you are looking to do. It would be like going into McDonalds and ordering lobster and expecting it because the are also in the food business. – JohnFx Apr 05 '21 at 22:28
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    They could also make money by selling coffees, sandwiches and burgers in the bank building. All part of the "finance business", right? – gnasher729 Apr 06 '21 at 12:52
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    Seems like your example is no longer valid :) https://marijuanapy.com/tchibo-offers-the-tesla-model-3-and-fiat-500e-as-an-e-car-subscription/ – piet.t Apr 07 '21 at 08:10
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You are underestimating the costs and risks to the bank

The basic idea here is that buying a house isn't a cost-free process, owning and renting a house isn't cost-free or risk-free, dealing with a delinquent tenant isn't cost-free or easy, and the bank doesn't get much value out of your happiness or housing satisfaction.

Buying a house costs a lot of money. You have to pay the purchase price, outbidding other interested buyers, pay fees along with the purchase, and so on. So from the second the bank buys the house (if they were to do so), they would have a pretty sizeable liability on their books. That's not appealing for a business focused on the finance side.

Owning and renting a house out are not free, either. As long as the bank owns the house they will have to pay taxes on it, and possibly other fees (like HOA fees, if they apply), are responsible for repairs and maintenance, and so on. The issue isn't so much the expenses of that but rather the overhead of tracking all of it, managing the work, collecting the rent from you, dealing with the tax filings, and that sort of thing. To keep the house in good condition and up-to-date with what current buyers like, they have to do more work to know what those trends are and pay out to keep the house value up. Is now the time to put in quartz countertops? Will the bank even get their investment back if they do?

The bank also has to face some risk from working with you. You might feel that you would be totally honorable with everything here but the bank certainly won't be so confident of that. If you don't pay the rent for a couple of months, the bank has to spend money and time dealing with you and getting the money. If they have to go to court to get paid, that costs even more money. What if you don't keep up with basic maintenance, causing more expensive problems down the line? What if you do some modifications yourself, but not that well? What if you trash the house, especially if they have to evict you?

There are a lot of ways that you could degrade the value of the house while living there, and there are plenty of renters that don't take very good care of the property they live in because it isn't theirs-- it doesn't matter to them if the cash value drops. You promising you won't do that isn't a very compelling argument no matter how serious you are.

And the idea that houses will definitely increase in value, or even hold their present value, is definitely not true. Famously, there were a few banks with that as a guiding ideal that didn't survive past the first decade of the 21st century. The bank is also almost certainly looking at competing options for investing its money-- it's not buying the house to rent to you vs. keeping a pile of cash in a vault, it's buying the house to rent to you vs. their most-likely-to-pay-off investment.

Balanced against all of these risks and concerns is one single thing: you would be happier living in the house. That's worth basically nothing to the bank and isn't part of its business at all. Why would the bank want to enter into this arrangement with you when they could write a mortgage to someone else and not deal with the extra risks and headaches?

It's a very slightly worse in your case because you have assets you could use to secure the property but don't want to spend them down. You want the bank to tie up its cash in this house for you, but don't want to spend the value of things you already own to get it. The bank doesn't want to dump money into a lower-return investment any more than you do.

Upper_Case
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First, when you buy a house with a mortgage, the bank does not "own the house until I've paid it anyway". You own the house from day 1, and you owe money to the bank. Practically, since the loan is secured by the house, the bank shares some of the risk of the house, in that they may lose if its value drops below your loan balance. But your down payment, and the additional equity you build over time, provide a "cushion" where the risk is yours before the bank's risk kicks in.

If the bank actually owned the house, the risk would be entirely theirs. Being a landlord is its own complex business.

I'm guessing that I'm missing something painfully obvious, but it seems to me that the bank risks nothing by buying the house "for" me, then have me live there for any amount of time, and when I'm gone, they still have the house and it may even have appreciated in value at that point. Plus they got all that money I paid them while I was around/alive, so they didn't lose any money, but gained a bunch.

The house could lose value outright, due to either a real-estate market downturn or poor maintenance. Assuming it doesn't, you seem to be imagining any rent you pay as optional "gravy" to the bank. But do you really think the average landlord sees it that way?

Real estate competes with all other investments on a risk/return basis. Buying a house and letting it sit empty is a poor investment; even if it does not outright lose money, it fails to maximize the asset and so it sabotages the total return needed to compensate the risk of real estate.

nanoman
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The vast majority of home mortgages are sold to the government backed lending companies, so many lenders only deal with loans that conform to the standards that guarantee they can sell them. This means a certain percentage down, debt to income ratio, credit score, etc. Taking on your situation introduces more risk than their standard loans.

You might find a lender willing to make an unconventional arrangement that works for you, but you can expect to pay significantly more.

Plenty of people use proceeds from sale of current home to pay for their next home, it's a common contingency in home offers. It could be too late at this point as you mention, but you could try to sell your apartment with an aggressively low asking price. Also, why do you want to start repaying in the future with bitcoin profits vs converting that bitcoin to cash now for a proper down payment?

Hart CO
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  • Well, for the Bitcoin question, the reason I cannot "waste" them now is that the price is very low at the moment, compared to even the most conservative predictions for late this year and especially the coming years. It would be downright criminal of me to sell them for fiat today. Plus, it would take a very long time anyway, and the house would be long sold. Finally, my total Bitcoin value today would not buy the entire house, so I would still be stuck with some kind of payment scheme, even if this were possible. – J S Apr 04 '21 at 23:48
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    @JS "even the most conservative predictions for late this year" -- I'm pretty sure there are at least a few people expecting Bitcoin to go down. It's not coherent to say everyone agrees it will go up -- or why would anyone be selling at the current price? Is it possible the "predictions" you're hearing are from a bullish echo chamber? – nanoman Apr 04 '21 at 23:58
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    It sounds like you'd only need to sell enough bitcoin to serve as a down payment and to cover monthly payments while you sell your apartment. It takes 1-2 business days to withdraw sale proceeds from a Coinbase account, I don't see why it would take a very long time. From my perspective you don't lack the ability to buy this house, you lack the desire to, and that's your prerogative. These are the tradeoffs we make, if bitcoin tanks after you sold off to buy a house you'll feel like a genius, if it skyrockets you may wish you had held on and let the house go to someone else. – Hart CO Apr 05 '21 at 00:10
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    My most conservative prediction is that your Bitcoin is worth zero in a few years time. Or that some scammer will have found a way to hack into your computer and take it away from you. – gnasher729 Apr 05 '21 at 13:52
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There are many banks that do operate in the way you describe. The bank buying the house and you renting it from the bank and then paying an additional amount to purchase the house over time is called an Islamic mortgage or Islamic home loan.

With an Islamic mortgage the bank becomes your landlord and because of the structure of the transaction, no interest is paid. The money you pay is partly rent and partly capital loan repayment.

If you want to put capital into that transaction, the equivalent of a deposit then the bank and you might start as co-owners of the house.

The bank has similar risks whether you have an Islamic mortgage or a repayment mortgage though:

  • you might stop payments
  • the house might be damaged or poorly maintained
  • the house might be worth less at some point in the future than it is today

There certainly have been periods where houses have become less valuable, particularly during recessions when large numbers of people lose their jobs and stop paying. Banks are then left in the position of trying to sell lots of houses during that recession to try to recoup some of their losses. Those people who might still want to buy a house are reluctant to do so at a point in time when they know that a house might continue to decline in value so the bank usually has to offer significant discounts to sell.

All of these risks need to be taken into account by the bank. If you don't have any money readily available that is a sign to the bank that you're more of a spender than a saver and it really does want to make sure that you keep up payments. If you have some money as a deposit then that reduces the risk to the bank as you would shoulder the first part of any losses i.e. if you had £10,000 and you put that towards a house purchase but then defaulted on the repayments the bank would get all its money first when the house was sold and you'd get the rest, which might or might not cover that original £10,000

Robert Longson
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