We recently got caught in another regulation change on our way to closing. Are you aware that there are new work for equity requirements? Do you even know what that means?
1. For existing construction: only repairs or improvements listed on the appraisal are eligible for work for equity. Any work or materials not included on the appraisal are not eligible.
What appraisal? This means, the lender wants me to get an appraiser to look at the work the buyer will be doing and set a price for it.
Then, the appraiser must look at it after the work is done to confirm the work and the value.
2. For any new construction, the sales contract has to list the work for equity work to be performed by the buyer so that a value can be assigned and confirmed.
3. On the borrower’s side, guidelines state that “the borrower must demonstrate his/her ability to complete the work in a satisfactory manner.” Um, is that left up to someone’s interpretation?
4. “The lender must document the contributory value of the labor either through the appraiser’s estimate or a cost-estimating service.” What’s a cost-estimating service?
5. Here is what they list as the things that may not be included in work for equity: delayed work, clean up, debris removal and other “general maintenance.”
OK, a few problems with this sentence. Clean up may not be counted? Have they ever seen the way we buy some of these houses? We recently spent over $3000 at the dump for a house we bought just getting rid of the personal possessions left behind. Not great possessions, mind you, there were 52 tires in the house. But, nevertheless, “clean up”, in my bookkeeping, counts as an expense.
And other “general maintenance.” Someones interpretation?
We spent over $6000 on interior paint. Warning, the lender may not allow it. This fell into a gray area – is it a repair, or is it cosmetic? Beware, paint may not count toward work for equity.
6. Cash back to borrower is not permitted in work for equity.
7. Compensation for work performed on other properties may not be allowed toward the property being purchased.
8. If the borrower furnishes funds and materials, the borrower must provide evidence of the source of funds and the market value of the materials. They must turn in all receipts to the lender.
Sellers are doing more and more to help buyers qualify for purchase, including giving them credits for work that must be done to the house after purchase. Know what their lender requires before agreeing to any work for equity concessions.
Have you had any experience with this?