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Sweat Equity FAQ

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  1. What is sweat equity?
    Sweat equity refers to materials provided or labor completed by a borrower prior to closing on a property. The dollar amount spent on materials and the value of the labor provided are considered the equivalent of a borrower’s personal funds and can cover some or all of their down payment and closing costs.
  2. Freddie Mac permits sweat equity to be used as the sole source of funds towards a down payment. Does the borrower contribute any other personal funds?

    No. Sweat equity provides a significant direct investment of time, energy and resources for materials, so we view this as an adequate contribution from the borrower toward the purchase of the home.

  3. How is sweat equity calculated?

    The value of the labor performed and the materials furnished must be estimated by the appraiser or a cost-estimating service and documented in the appraisal report or in the mortgage file. The value of the materials may be calculated using receipts from the purchase of the materials.

  4. Are the appraisal requirements different than the traditional appraisal?

    The lender will ensure that the appraiser completes the appraisal with an "as is" value and an "as completed" value that identifies the repairs and cost of repairs. When the property is complete and prior to closing, the appraiser will complete a final inspection and verify the work was completed and in a workmanlike manner.

  5. Is there a maximum down payment percentage allowed for sweat equity?

    No. There is no limit on the amount of sweat equity that can be applied to the down payment and closing costs, as long as it is documented in the contract and appraisal. The borrower can use sweat equity for less than three percent of the value or complete a major renovation that would provide a significant amount of down payment on the purchase of the home.

  6. If a borrower can show they paid for paint, carpet, etc., and wanted to do a 97% LTV, they can be reimbursed for material costs. When there is no evidence by receipt and value is calculated by a cost estimator, is the borrower reimbursed?

    No, we do not allow reimbursement for materials borrowers provide for sweat equity credit. Any excess cash must result in a reduction in the loan amount.

  7. Appraisals don't generally estimate value of labor today, how will Freddie Mac account for this?

    Appraisers can use cost-estimating services to determine value of materials and labor. We will provide training for lenders and appraisers created specifically around sweat equity.

  8. How is the dollar value of sweat equity determined?

    Credit for sweat equity will be identified and given a dollar amount in the appraisal or by a cost estimating service. This assigned value will be applied at settlement on the closing disclosure.

  9. How will Freddie Mac know that the repairs or improvements are completed?

    The appraiser will complete a final inspection of the property to verify the repairs were completed in a skillful, workmanlike manner.

  10. Why is credit for work completed prior to the original property inspection not eligible under the sweat equity policy?

    If work is completed prior to the appraiser's original property inspection, there's no way to determine when it was done or if it was done by the borrower.

  11. Are there time restrictions regarding sweat equity from first appraisal to final inspection?

    The acceptable age of appraisal reports is up to 120 days prior to the Note Date. The final inspection would need to be completed prior to the Note Date.

  12. May I use sweat equity as a down payment source for manufactured homes?

    Yes. We allow sweat equity on manufactured homes up to a maximum LTV ratio of 95%.

  13. Are there special delivery requirements for Home Possible Mortgages originated with sweat equity as a credit toward down payment/closing costs?

    Yes. Home Possible Mortgages originated with sweat equity as a credit towards the Down Payment and/or Closing Costs, the Seller must deliver Investor Feature Identifier J11. The full requirements are found in Guide Section 6302.14 (b)(v).

  14. Where can I find information to better understand you Home Possible sweat equity enhancements?
    For additional information, training programs, job aid and/or reference documents on Home Possible Mortgages with sweat equity, please visit the Freddie Mac Learning Center. Our requirements for sweat equity can be found in Guide Section 4501.10.