We are handy and want to buy a house using sweat equity for a down payment. Will lenders go for this?
From time-to-time, you hear about lenders that allow the use of sweat equity as a credit toward a down payment, but not all of it. Most lenders, however, are not thrilled with this concept. The problem is valuing labor. If a professional paints a house there is work completed to a given standard (that helps maintain the value of the home, and the lender’s security if the loan is defaulted) and there is a bill for labor and expenses (paint, caulk, etc.).
With sweat equity, there can be a cost for supplies, but how is labor valued? At the same rate as for a professional? A discount? And what about workmanship?
The best approach is to speak with as many lenders as possible to see if they have a program that allows the use of sweat equity. Ask about the maximum sweat equity contribution allowed, and other important topics such as the total cash needed to close, rates, and points.