Sweat Equity FAQ

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

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

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).

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 4501.7.