We are handy and want to buy a house using sweat equity for a down payment. Will lenders go for this?
From time to time you hear about lenders that allow the use of sweat equity as a credit toward a down payment. Most lenders, however, are not thrilled with this concept.
The problem is valuing labor. If a professional paints a house there is work completed to a given standard (which helps maintain the value of the home, the lender’s security if the loan is defaulted) and there is a bill for labor and expenses (paint, caulk, etc.).
With sweat equity, there can be a cost for supplies, but what how is labor to be valued? At the same rate as for a professional? A discount? And what about workmanship?
The best approach is to speak with as many lenders as possible to see if they have a program which allows the use of sweat equity. Ask about the maximum sweat equity contribution allowed, total cash needed to close, rates, points, etc.
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