No Money to the Table!
Freddie Mac has an Enhanced Sweat Equity Program where borrowers (aka purchasers) can purchase a home and use sweat equity as a down payment and closing costs. No money to the table!
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.
Like most you, we have a lot of questions concerning this program:
- If you are unable to afford a down payment of 3%, can you really afford to own and maintain a home?
- If the borrower does not have the down payment, will the borrowers have money for repairs?
- Will borrowers max out a credit card increasing their debt?
- Will sellers allow anyone to perform work on a property prior to closing?
- Are buyers really willing to perform work on a property they do not own?
- What happens if the loan does not close?
- Why are appraisers being asked to “certify repairs”? Is that our expertise?
- Does this type of program really ensure the safety and soundness of the real estate market?
- What do the localities think of this program?
- Will this be damaging to already fragile rural markets?
Lots of unanswered questions and not a lot of information on Freddie Mac’s website. Check it out for yourself!
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Appraisers being asked to “certify repairs” with VA and FHA every day. Why is this a surprise? VA and FHA ask us to not only come up with repairs that need to be done, we also have to do a final inspect to make sure they were done. This is a “never” for me. If I see something that looks strange, I call for an inspector to look at it. Due to these rules, many appraisers now think they are inspectors and FHA/VA give them the power. Why an inspector is not called is beyond my comprehension. I have even fought with AMC and bank reviewers over this crap who think they know construction and force me, yes FORCE ME to come up with repairs. (By the way, I never comply, I will make the appraisal “subject to” an inspector, but I will NEVER come up with repairs and require them. Many many appraisers are doing this exact thing) FHA, VA AND reviewers are just so out of control. I am an appraiser, not the ice cream man, auto mechanic, roofer, A/C guy, or even a chef. I am certified to know how to value real estate. I can grade the general condition of things. Any more than that, experts should be called. I cannot say this enough, FHA, VA AND reviewers are just so out of control. Appraisers who think they are inspectors are even more out of control.
As appraisers, our expertise is not qualifying potential buyers. Being asked to certify repairs are complete is nothing new either. Every time we complete an inspection, we are responsible for reporting deferred maintenance or incomplete new construction. No big deal.
If you don’t know about repairs to a property, you shouldn’t be doing appraisals !!! Use a disclaimer comment in your addendum….”while I am not an expert…blah, blah, blaw.” you can Google anything regarding what it cost to repair anything these days.
Of course, but appraisers, reviewers who try to explain what kind of siding needs to be put on, gutters that are installed incorrectly, sorry, they have no training for this and should not be recommending construction techniques. We are going to have to disagree on that my friend.
I have been in court cases where an appraiser tries to testify on construction techniques. They get torn apart.
Oh now I’m supposed to be a receipt auditor?
“We’re from the government and we’re here to help.”
Cost to cure is a non issue, just call for ‘recommendation of a person qualified in this field of service’, slap a subject to and a loose range estimate based on hypothetical limitations to the condition, problem solved. If it turns out to be more, the buyer can always walk away. It would go against logic to believe this program entices buyers to perform work on properties they do not yet own, or if it did, that’s an absurd concept and they should get 203k’s instead.
Bridge loans are a great way for residential appraisers to supplement their business. 12% for three months plus fees don’t need a certificate or licence in California. These loans may put all of your talents to measure.
Wow! Jon is pretty worked up over FHA/VA, I happily do both! 99% of the repairs are for peeling paint and hand rails. To each their own but Jon take a deep breath count to 4 and exhale!
There’s reason for concern. Have you ever checked the VA policy relating to roofs? They refuse to allow appraisers to call out for roof inspections, but rather want the appraiser to call out a partial repair, or an entire repair (new roof) all while saying you don’t have to get ON the roof. I’m working on a report now where I will most likely call for an entire new roof. Calling out new roofs, is a long way off of calling out a cost to cure for a pane of broken glass.
Seek the truth.
Think of this for a minute. You, the appraiser call for repair or roof replacement on a property going through this sweat equity program. The roof is replaced by the purchaser and you sign off on it. The loan goes south and does not close. A storm comes through, the roof does not hold and there is damage. Owners insurance company asked who installed the roof. Owner says, a potential purchaser and the appraiser signed off on the repair. Who do you think the insurance company and owner are going to go after? Guest what, your E&O will not cover you on this.
It is best to always require an inspection and or repair by a licensed qualified professional. Your E&O company has attorneys that can provide guidance on the verbiage to include in your report and advice on what to do. They do not charge for this advice.
Remember, just because your client wants you to do something, it does not wan you should.
You couldn’t be more wrong ! The roofing company would be liable. That is only if the appraiser looked at what he saw as a new roof. If for some reason that the roof obviously looked like a half ass job. Then he should write he/she had concerns regarding the repair that has been made and write it does not appear that the repair was made “in a workman like manner”. Then the appraiser should call for a roof inspection if he had any concerns. We are not held responsible for anything outside of our expertise ! 27 years of appraising and NO problems !!! Don’t forget…disclose, disclose and disclose !!!
What roofing company? The program is for sweat equity, the purchaser put the roof on, not a third party contractor.
Whoever puts on the roof, would be responsible for the quality of the job, not the appraiser who views the roof from the ground and it appears to have been done properly, that’s like saying that the appraiser is responsible if the buyer didn’t bother to insulate the exterior walls when he goes to put up new drywall that the appraiser would be responsible. We appraisers are only liable for readily observable defects.
WOW! you really don’t get it. I would strongly suggest you discuss this with an attorney.
I do get it. You should as well !