It only works on an FHA loan and it does require a bit of advance planning. In order to use it, the sales contract must indicate the work the buyer will complete during construction, the amount of dollar credit for that work (labor only), and the contractor must supply two bids from contractors to show that the amount being paid to the buyer is consistent with the amount a subcontractor would charge for the same work. If the buyer is doing the work, they do have to demonstrate that they have the skill set to do that work. While most anyone can be approved for painting sweat equity you’d have to be a plumber to get approved for that type of work. Additionally, the appraisal must be completed prior to any work commencing on the project. Any work completed prior to the appraisal is ineligible as sweat equity.
While it is common to hear advertisements for “no cost” refinances, lender paid closing costs on purchases are less common. With rates at all time lows, using an Above Par rate credit to pay the borrower’s closing costs, in combination with sweat equity credits, on a new construction purchase, can create a true ‘no money out of pocket’ scenario.
It seems like the more things change, the closer we get to the way things were 25 years ago! It’s time to create some yellow yard signs that say, “Paint your way in!” Winter’s coming
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