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What if you could trade sweat equity for a cash down payment and closing costs?
By Jeff Lazerson
What I think: Talk about a timely gesture with Hanukkah, Christmas and Kwanzaa just around the corner. This week Freddie Mac gave the go-ahead to unlimited sweat equity to count toward your down payment and closing costs through its enhanced Home Possible Mortgage program.
That’s right! Buy your home with no money down and a well-priced mortgage to boot.
Sweat equity refers to materials provided and/or labor completed by a borrower prior to close of escrow. The value of the 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. The labor value also must be estimated by the appraiser or a cost-estimating service. Labor must also be completed in a skillful manner.
The concept is to help renovate aging homes, particularly for borrowers in rural and underserved communities, and at the same time, increase homeownership opportunities. That said, this loan program is available anywhere.
Here is how it works:
The general rules state:
It is imperative that you have a skillful negotiator write up your contract with the seller because you will need to add time for the project completion. And, require your loan officer to deliver an additional and complete loan pre-approval (not just the materials and labor dollar totals) after the initial appraisal inspection is completed — and before you pour your money, time and energy into the property improvements.
Happy holidays indeed!
Jeff Lazerson - Mortgage Columnist since 2011