Sweat Equity=Down Payment

By | January 9, 2019

Freddie Mac has an Enhanced Sweat Equity Program where borrowers (aka purchasers) can purchase a home and use sweat equity as a downpayment and closing costs. No money to the table!

Here’s what’s allowed:

  • Sweat equity to be used for the entire amount of down payment and closing costs with maximum 97 percent LTV/105 percent total LTV (affordable seconds).
  • Sweat equity for manufactured homes up to a maximum LTV ratio of 95 percent.
  • Sweat equity as an eligible source of funds for:
    • All repairs and improvements to be completed by the borrower that are listed in the sales contract and included in the appraisal report.
    • Repairs or improvements that are reflected on the appraisal report that are outstanding at the time of the appraisal.
    • Credit for work completed prior to the original property inspection by the appraiser is not eligible for sweat equity.
  • Sweat equity will be calculated as follows:
    • Value of the labor performed must be estimated by the appraiser or a cost- estimating service and documented in the appraisal report or separately in the mortgage file.
    • Value for materials furnished must either be estimated by the appraiser or a cost estimating service, or be calculated using receipts from the purchase of the materials, or be documented by receipts from the purchase of the materials.

Any labor performed must be completed in a skillful manner to support the appraised value and must be certified by an appraiser.

Like most you, we have a lot of questions concerning this program;

  • If you are unable to afford a down payment of 3%, can you really afford to own and maintain a home?  
  • If the borrower does not have the downpayment, will the borrowers have money for repairs?
  • Will borrowers max out a credit card increasing their debt?
  • Will sellers allow anyone to perform work on a property prior to closing?
  • Are buyers really willing to perform work on a property they do not own?
  • What happens if the loan does not close?
  • Why are appraisers being asked to “certify repairs” Is that our expertise?
  • Does this type of program really ensure the safety and soundness of the real estate market?
  • What do the localities think of this program? 
  • Will this be damaging to already fragile rural markets?

Lots of unanswered questions and not a lot of information on Freddie Mac’s website. Check it our for yourself!

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One thought on “Sweat Equity=Down Payment

  1. Mike Ford, AGA

    So, they turned it into an appraiser burden? I liked the idea at first glance. After all, I think labor does have value. I’m just not sure we are the best ones to measure that particular intangible. As I said, I like it until I read all the appraiser follow-ups required. I am NOT certifying to the value of anyone’s labor OR the cost of their repairs. PERIOD.

    It is yet one more thing that must also be performed in a USPAP compliant manner by an appraiser, and one that has NOTHING to do with the as-is market value as of the date of the appraisal. APPRAISERS STOP TAKING ON UNNECESSARY ADDITIONAL RISKS! NOW you are going to certify as to the quality and workmanship of a prospective buyers labor? Seriously? And if the work is lousy and you call it out you NOW have to deal with a state board complaint because you hurt a buyer’s sensitivities and ego, not to mention holding up his closing? Does Freddy ever run this garbage past their legal department before adopting it as policy?


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