Overview

Want to offer prospective homebuyers additional financing options for an affordable home purchase? With our enhanced Home Possible® sweat equity parameters, you can.

Borrowers can use their construction skills, instead of cash, to cover their down payment and closing costs without dipping into personal funds. This increases the pool of mortgage-ready customers for lenders.

Sweat equity refers to materials provided or labor completed by a borrower prior to closing on a property. The value of the labor they provide and the money they spend on materials to renovate the home is considered equivalent to personal funds.

There's no limit on the amount of sweat equity that borrowers can apply to the down payment and closing costs, as long as it is documented in the contract and appraisal. They can use the value of the sweat equity for as little as three percent of the value, or they can complete a major renovation that would provide a significant down payment amount on the home purchase.

Benefits

With these enhanced sweat equity parameters, everyone wins. Our offering:

  • Supports/promotes the renovation needs of aging homes.
  • Provides an additional source of down payment.
  • Allows homebuyers who work with their hands to make their down payment with their construction skills instead of cash.

Snapshot of Our Enhanced Sweat Equity Home Possible Mortgages Parameters

We always offered the option to use sweat equity as a source of funds, but borrowers had to contribute five percent from other personal funds towards their down payment. Not anymore.

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.

For More Information

  • View our Duty to Serve Freddie Mac Single-Family Seller/Servicer Guide (Guide) Bulletin.
  • Contact your Freddie Mac representative or call the Customer Support Contact Center (800-FREDDIE).
  • Visit the Freddie Mac Learning Center for additional information, training programs, job aids and/or reference documents to better understand the Home Possible sweat equity enhancements.