Sweat Equity

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Post Posted: Mon Apr 05, 2004 1:27 am    Post subject: Sweat Equity
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Sweat equity refers to the quantity of manual labor put into the construction of a property by a purchaser. The purchaser helps to increase the home value by providing labor or services towards the construction of such property. Generally, buyers agree to sweat equity programs so that they can get cash to pay a part or the entire down payment and closing costs through their services related to home construction.

There are a number of non-profit and non-government organizations that offer programs related to sweat equity. This is done to build quality, low-cost and affordable housing. These organizations further provide home mortgages that can help buyers purchase their properties at low costs.

Criteria for joining sweat equity programs:

  • Sweat equity programs are applicable to those who reside in unhealthy or unsafe conditions or pay a large sum as rent compared to their income.

  • They must be willing to put in several hours of labor towards the construction of the property.

  • The individuals requiring such programs must be legal residents for minimum 3 years in the state where they wish to buy the property.

  • The individuals must be working with an organization for at least 3 years in that particular state.

  • Candidates should have the ability to afford mortgage payments. They should also not have large amount of debt.

  • The programs fix a limit on employment generated income and long term disability income, if any, within a certain value and candidates of such programs must fulfill the required limit.
Benefits:
  • With availability of sweat equity programs, low-income home buyers can easily make adequate investment towards their new home. This helps them to avail low cost mortgages having comparatively lesser loan amount. Therefore, borrowers can pay off the loan at reduced monthly payments.

  • Sweat equity helps home buyers with sufficient amount to make their down payment. In most cases, it amounts to 10% or 15% of the sales price as the down payment. This helps them to avoid paying for private mortgage insurance premiums till the home equity increases to 20% of the property value. This helps lenders offering mortgages recover monetary loss in case the borrower cannot repay the entire loan.
Sweat equity programs help to reduce the cost required to pay off a home mortgage and therefore increases the financial stake of each member of the house. It provides borrowers with sufficient funds to make their down payments and then avail a loan at better interest rates. Apart from offering monetary assistance to a wide range of buyers, the sweat equity programs also provide the necessary training and skills required for home maintenance in future. Low income people income can accumulate adequate cash to make initial payments towards the purchase price of their properties in return of their service, and hence fulfill their dreams of getting a home of their own.
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