Just a few years ago, many people were buying homes with no money down. Unfortunately, at the height of the real estate boom, most of these deals were done by agreeing to take a regular mortgage and a home equity loan to cover the down payment. With home prices falling, this type of transaction is no longer happening. Again, having enough available cash for the down payment has become an issue for many potential home buyers. Although not written about often, there are other ways to purchase a home without a cash down payment.
FHA continues to be the consumer friendly entity that promotes affordable homeownership. Benefits available to consumers through the use of an FHA mortgage are numerous. One of the least discussed benefits is using sweat equity to purchase a home. If you can physically perform some minor work on the home prior to purchasing it, this work, otherwise known as sweat equity, can be used for the down payment for the FHA mortgage. FHA has guidelines and instructions that must be followed in order for this to be acceptable. There will be additional documentation that will be required, but, in the end, it is well worth it.
In order for this to be possible, your lender should walk you through the steps so that there are no problems down the road. Sweat equity works especially well with as is and foreclosure properties. When the appraisal is performed, it will be noted what work is necessary to be done and the estimated cost of the work. The borrowers must be able to document where the funds came from, as well as the cost of the materials. Work such as flooring, painting, carpentry and trim work is acceptable. Anything that requires a license or certification is not acceptable. The lender will have more details about what will and will not work. Things such as clean up and garbage removal is not acceptable. It is also acceptable for other family members to do the work as a gift. FHA is well known for allowing gifts to be used towards the down payment as long as they are acceptable and approved. If a family member performs the work, the sweat equity documentation will need to be fulfilled, as well as the gift documentation.
FHA has become the leader in home mortgages in recent years because of its unique programs that help everyday consumers become home owners. This is only one of the many types of programs offered by FHA in their continued effort to promote homeownership.
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